Central Garden & Pet at 25th Annual Consumer Growth Conference: Strategic Shifts and Challenges

On Monday, 09 June 2025, Central Garden & Pet (NASDAQ:CENT) presented at the 25th Annual Consumer Growth and E-Commerce Conference. The company outlined its strategic focus on agility, innovation, and mergers and acquisitions (M&A), while addressing challenges in the garden segment and the durable goods market. CFO Brad Smith highlighted a decentralized decision-making approach and emphasized resilience in pet consumables amid evolving retail dynamics.

Key Takeaways

• Central Garden & Pet is transitioning to a more agile, decentralized management style.
• M&A is prioritized, particularly in pet consumables, with interest in adjacent markets.
• Pet consumables remain resilient, while durables have declined to less than 20% of pet sales.
• The garden segment is heavily influenced by weather, with mixed performance across categories.
• Online sales are growing, but pet specialty stores face ongoing challenges.

Financial Results

• Pet Consumables: Represent about 80% of the pet segment, showing strong resilience, especially in dog and cat products.
• Pet Durables: Sales have decreased from 35% at the pandemic’s peak to below 20%, due to both market softening and SKU rationalization.
• Garden Segment: Highly dependent on weather; favorable conditions boost sales, while adverse weather impacts the live goods business. The wild bird category had a record year despite challenges.

Operational Updates

• Management Changes: Nico became CEO and Brad Smith assumed the CFO role approximately eight months prior to the conference.
• Strategic Shift: Moving towards a more agile culture with increased decision-making power for business units.
• Innovation Focus: Developing innovation capabilities to match cost efficiency and simplicity.

Future Outlook

• M&A Strategy: Focus on pet consumables and exploring adjacencies like non-crop chemical companies.
• Capital Allocation: M&A is the top priority, followed by internal investments and share buybacks.
• Retail Dynamics: Growth in online channels and major retailers like Costco and Walmart; challenges persist for pet specialty stores.

Q&A Highlights

• Tariffs Impact: Tariffs have negatively affected durable goods sourced from Asia. The company is shifting sourcing to countries with lower tariffs, such as Cambodia and Vietnam.
• Housing Market Impact: Stagnant housing market affects larger landscaping projects linked to HELOC rates.

In conclusion, Central Garden & Pet is navigating a complex market landscape with strategic shifts towards agility and innovation. For a deeper dive into the company’s strategy and outlook, refer to the full transcript below.

Full transcript - 25th Annual Consumer Growth and E-Commerce Conference:

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Good afternoon. Thank you very much for joining us. So my name is Brian Daigle. I’m a senior equity research analyst here at Oppenheimer covering consumer growth and ecommerce. This is our, twenty fifth annual Oppenheimer consumer growth and ecommerce conference.

So, again, thank you for attending. So I’m very pleased to have our next presenting company with us, Central Garden Pet, and the company’s CFO, Brad Smith. So, Brad, thank you for joining us. Thank you. So we’re gonna structure this as a, informal fireside chat with me asking questions and Brad answering questions.

To the extent there are any questions from the audience, just send them through the chat, and we will work them into our conversation. So, again, Brad, thank you for taking the time to join us. Sure. So, Brad, I wanna start. I I we just met now.

But you’re you’re new to Central Garden Pet. There’s been a management shift there. So maybe talk about the management team that’s management changes happened over the last, say, several months and, you know, maybe how the strategy of the company is changing with that. Questions or Brad answering questions. To the extent there are any questions from the audience, just send them through the chat.

So it’s, I don’t know where we left off there, but

Brad Smith, CFO, Central Garden & Pet: you were asking me about, being in the role for eight months or so now. I think it’s been eight months and whether there’s been any changes in strategy. Yeah. I so, yeah, Nico took over CEO about eight months ago. I kinda came in to take him over as CFO.

I’ve been, previously the CFO of the the pet segment. I still am, but that’s entirely separate issue, for the time being. So core strategy, bottom line is it remains consistent. There’s been no hard or left, hard right or left, pivot. But I would say there’s three things that are really have really changed in in our with our leadership.

of all, we’re transitioning foundationally from a more centrally driven process heavy culture to a more agile culture that gives up more decision making latitude to the BUs. You know, if you look at the past several CF CEOs, they came from larger, more mature CPGs, and they brought with them a way of working that, is a little bit different than than the way Nico and I feel is right to allow us to to to reach our potential. So, you know, when we look at our business, we are very fortunate to have in the business units very seasoned and and entrepreneurial leaders, across pet and garden. And when you look at the central leadership team, we’ve got a very cohesive and collaborative team. So, when I con con contrast where we’re at now, particularly at the leadership level versus where we were the past eight years, the level of, communication, collaboration, and trust is, at the highest I’ve ever seen it.

So with, the bench strength at the BU level and what we’ve got at the leadership level, we wanna leverage the strength to enable the BUs to act faster, be bolder, take more calculated risks, more like a startup. And that really leads, to my point of differentiation. We we really want to build the same level of capabilities in innovation going forward that we built the last few years around cost and simplicity. We’ve had a significant focus, last two or even three years on taking cost out of the business, and it was a muscle we need to develop. And we’ve gotten really good at it and are at a point where I would consider it as it’s part of our DNA, and we’ve got a nice pipeline going forward of projects that should enable us to really see meaningful further cost savings going forward as part of our algorithm.

So we want to really pivot to developing innovation as a core capability to the same degree of what we’ve got with cost and simplicity and really be able to further differentiate our offerings and strengthen our competitive advantage. The last comment I would make in terms of differentiation now is M and A has always been a key, part of our strategy, but it’s really been focused purely around the pet space and the garden space. And going forward, we are focusing, mostly on pet consumables, but also are increasingly looking at adjacencies, which could be, meaningful based on the the areas that we play in. For example, you know, within our pet segment, we’ve got a professional business that is a formulator of pest control products for our pet consumer space, for the garden consumer space, as well as, cattle for cattle, farmers, swine, pest con commercial pest control, and and, and other spaces outside of traditional pet and garden. So the sorts of companies we’ve been looking at are are, for example, non crop chemical companies that have similar capabilities that we could could combine with what we have to to unlock a higher level of, opportunity or not only in the existence existing spaces we already serve, but also in new, markets.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: It’s very helpful. So let’s, I let’s talk about business. I’ve always you know, one one of the feedback is always a trigger about your business is these two segments. You know, the the the pet and the guards. Maybe we can look at them just, you know, separately for a bit.

You just talk about some of the dynamics happening. So so let’s start with the pet the the the pet category. I mean, how would you view the overall demand environment for for pet right now? Some of the, you know, the challenges and opportunities there.

Brad Smith, CFO, Central Garden & Pet: So I would say, I would bifurcate it into, consumables versus durables on the pet space. I would say consumables have been, very, resilient, particularly around companion animal, dog, and cat. Household demand for for new pets, replacement pets is down a little bit slightly below pre pandemic levels in dog, but slightly above pre pandemic levels in in cat. But but there seems to be a stabilization and demand of of that we’re seeing on the dog front. And and our hope is that, or or or we’re reasonably optimistic that we could start to see a, a return to some amount of growth in in dog ownership going forward.

But the consumable space, which is the bulk of our it’s about, 80% of our of our of our business in in pet, continues to be, fairly resilient. And we tend to be primarily a branded business and tend to play in what I would call the good and better, categories and not in the super premium categories, which was has enabled us with the right level of commercial investment to continue to to compete, particularly in this environment where private label would naturally start to become more appealing to consumers. On the garden space, and so we’ve continued to to, you know, have a good business there and on consumables, and we’ve continued to hold share for Get Your Garden. If I look at durables, durables is an area that is contracted quite a bit since the pandemic. If you look at where we were at the height of the pandemic, I was thinking I think it was about 35% of our total sales in pet, and now it’s down slightly below 20%.

Some of it has been demand for consumer for durable items declining, which is really a function of pet adoption and ownership, softening. But in addition, we have, taken a lot of steps over the last few years to further consolidate and skew rationalize those businesses as well, so that what we do have left is is meaningful and still profitable. So I would say if you look at what’s happened, since the high of pandemic and the decline, we’re down to from roughly 35% of sales to slightly less than 20%. About half of that has been the market softening, and the half of that has been us taking decisions to skew rat, consolidate and optimize those businesses to retain profitability on a base that we expect to be lower going forward. So that’s pet.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: So just for clarification, when you talk about durables in the pet side, like what those products you’re referring to? Or is there some key products you can give us?

Brad Smith, CFO, Central Garden & Pet: Yes. So we have, for example, dog beds would be a durable item, fish tanks would be a durable item, these sorts of things.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: And so those items were the the demand for those items picked up significantly during the pandemic?

Brad Smith, CFO, Central Garden & Pet: Right. Now

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: there’s is there just know, even as, you know, people are maybe adjusting their pets, there’s just not as much demand for the durables because the durables last?

Brad Smith, CFO, Central Garden & Pet: Yeah. Yeah. The durables last and, yeah. When they’re not buying pets, they’re they’re buying them less. And then when times are tough, they will just extend how long they use these items.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: So where did you how did I think you were kind of alluding to this, as we think about trajectory going forward then or, you know, if we get to some type of normalization, you know, how should that mix look?

Brad Smith, CFO, Central Garden & Pet: I would say if we exclude acquisitions and just, assume organic business going forward, we would be getting down to, I would say, somewhere between 10% to 15% of total Pet segment sales being durables.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Okay. And is that pre pandemic, what was that number then?

Brad Smith, CFO, Central Garden & Pet: Around 35, I think, at the peak.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Oh, that was but then before the before the, before the pandemic, that was it?

Brad Smith, CFO, Central Garden & Pet: Oh, before the pandemic, probably about I would say probably ’25 ish, maybe 25, maybe 30.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: You’re shifting lower than pre pandemic then?

Brad Smith, CFO, Central Garden & Pet: Yes. For sure.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Yeah. And is that a different demand dynamic that’s taking shape with the durables? Is it more a function of some other demand dynamic in the consumable side?

Brad Smith, CFO, Central Garden & Pet: Well, I I would say a lot of it is, you’ve got more and more business that is being that that has, gone more to being, finished products out of Asia. So you’ve got that dynamic and that particularly came to light once Tmall started accelerating and whatnot. And so more and more of these finished goods are being done out of Asia and other countries. And so that is, you’ve you’ve had a decline in demand for the reasons we just described in an increase in competition coming from overseas. So a bit of a double whammy.

So right now, we we’ve opt we are optimizing down to a residual business that is one where we can have differentiated products that will continue to be hold their own and still have a reasonable amount of demand and command a healthy margin and be less apt to be knocked off, by overseas competition.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: So and I I sorry to jump around. Excited for my list.

Brad Smith, CFO, Central Garden & Pet: I was

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: coming through, but I I I definitely want to talk about your tariffs and and shifts in trade policy. So how does that I mean, what what what we’re seeing and recognizing it’s very fluid, but how would how would tariffs, impact what you were just talking about there from a competition standpoint?

Brad Smith, CFO, Central Garden & Pet: Well, they, it’s interesting because if you look at our, of our durable at our durable products, a number of them, we either sort source the raw materials from from, Asia, primarily China or finished goods. So, it’s it’s made demand, even softer because, some of that, for example, we sell finished goods that are direct ported, imported by customers, particularly pet specialty customers. And when all of a sudden they’re looking at tariffs above a 100%, they’ll just say, well, they’ll just cancel the orders because they know that that, they’re gonna be on the hook for paying the tariffs, and and and they’re gonna be upside down in terms of profitability. So, demand has been softened even more as a result of tariffs. And, you know, what we’ve been doing is act unfortunately, we started before Liberation Day, but we’ve been actively moving sourcing to other countries such as Cambodia and Vietnam that have lower tariff rates.

We’ve been doing things such as SKU redesign. We’ve gotten some vendor concessions. We’ve done further SKU rationalization, and we are still in some cases though having to take pricing. So it’s made the the, the environment more difficult. Now with the de minimis tariff exemption, was, creating pain for us, with that being removed.

And it’s too early to tell, but we think that, for business coming out of China, we may be seeing some upside because if I move something to Cambodia and I’m able to source that out of Cambodia and then the competition from Timu coming out of China no longer has a tariff exemption on it, I I may have a more level playing field and be able to compete a bit better with those. But we need some more data. This is this is fairly fluid to your earlier point.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Yeah. And just from an overall pet so, you know, I do again, wanna make sure I heard something correctly. So from a, you know, pet adoption ownership standpoint, are we starting to see some general stabilization there?

Brad Smith, CFO, Central Garden & Pet: Yeah. We we need some more months of data. But if I look at the data we do have, part of our business, which we do also count as a durable, is a business in pet that that, buys and distributes fish and small animals. And so that’s obviously the area that’s been hit the hardest, in terms of a decline in in pet adoption. And so we’ve we’re seeing what appears to be some signs of stabilization in demand.

And, you know, we need to we need some more months to to know for sure whether it’s a trend, but what we’ve seen the past few months has been encouraging. Other data points we’re we’re we’re seeing and hearing around dog would suggest we’re seeing as potentially a similar stabilization, but again, more time needed. And then cat just continues to be fairly resilient. You know, it’s it’s a relative of you know, versus dog. It’s an easier animal to take care of.

You can keep it at home all day. So it’s helpful for folks that have returned to office. And, yeah, we’ll see. We’ll let you know in a few months. Hopefully, we we’ve got a stabilization.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: That’s helpful. So you want to jump over to the the garden segment. We we spent some time there

Brad Smith, CFO, Central Garden & Pet: on Yeah.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Talk about the dynamic in garden. Go ahead.

Brad Smith, CFO, Central Garden & Pet: Yeah. Yeah. So garden is is a business that is very weather dependent. And, so, you know, what we’ve seen is, when you’ve got good weather, demand is fantastic and you’re you’re practically printing money. When the weather doesn’t cooperate, it can be quite a different story.

The last few years, you know, weather was pretty tough. And what I mean by that, if you look at our Q3, which is our which is, April through June, that’s our primary selling season in garden. And ideally, you want sunny weekends that are warm but not hot. That’s where people go to Lowe’s and Depot and Walmart and buy everything. And that’s where we do the the majority of our business.

The last few years, we had, cold and wet weather on week on a lot of weekends across many of our markets. And so we had planned for this year and contemplated in our guide was after two years of this, type of, unfavorable weather, we assumed, that weather would be okay, but not great to be on the safe side. And, and that’s really proven to be proven out to be the case. I would say, if you look at grass so far and, our our fertilizer business, which are two significant businesses, those have done relatively well over the over the, the last few months and and into June. So we’re feeling good about that.

But some of our other businesses that are the most weather dependent, which, be would be prime primarily our live goods business has really, you know, struggled because of the fact that, they’ve that we’ve had so many weekends across so many territories that have been cold and wet, including last weekend, even across several territories. So, it’s it’s a mix a mixed result. You know, net net, it’s it’s trending in line with what we expected, but, you know, we continue to to to have the weather challenges again this year in a row. Now we are into June. We’re not through the selling season yet.

We could see, an extension of the selling season into June and perhaps even into our fourth quarter because, you know, the weather hasn’t turned hot yet. So as long as the weather is if we have some more weeks of sunshine and it doesn’t go from cold and wet to hot overnight, we should be able to see some additional selling season. Also, one potential tailwind we’ve got this year, which we didn’t have the last few years, so many folks are canceling their travel plans for the summer or cutting back. And what benefited us so much, during the pandemic, was people being home during the summers, and they that led to them spending a lot more time on their in their gardens and their lawns. And so, we we believe that potentially the the the cutback in summer vacation travel may also, give a tailwind.

We haven’t planned for it. It’s upside if it happens, and we’ll see.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: So on the weather point, you know, it’s a conversation I have with a lot of the companies I cover, but just always wanna be clear. So so in markets, obviously, United across United States, in markets where you’ve had, let’s call it, normal weather, if that exists, sales, were tracking well.

Brad Smith, CFO, Central Garden & Pet: Yes.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: And then it’s it’s it’s in the it’s in the markets where you’ve had, you know, unseasonably cool, wet temperatures. That’s where sales are weak. So they’re really it’s not if you look it’s it’s not a consumer problem. This this would be weather.

Brad Smith, CFO, Central Garden & Pet: Yes. Exactly. It is weather. Now we do have, I would be remiss not to point out our wild bird business. That is one business we have in the garden space that is counter seasonal to the others.

When it’s cold and or wet, people, they spend money on wild bird feed, and that is it’s a significant part of our garden business, and that’s had a record year so far, into Q3. And, and so that that’s been a bit the the silver lining in in an otherwise challenging year from a weather perspective.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: So just explain that explain that dynamic a little more. What’s the the driver of demand within within the bird seed category?

Brad Smith, CFO, Central Garden & Pet: There are people out there that worry that the birds aren’t gonna be able to fend for themselves. I I, I don’t know what to I don’t know how else to explain it, but but that that the wild bird, consumer has really that market has grown significantly over the last several years. And if I told you I fully understood the psychology of it, I would be lying. But, it’s really been something that has become a thing and and very popular and across, I mean, the gen gen gen x, millennials. I mean, the folks are very interested, and there’s there are some folks, hobbyists, that spend quite a bit of money on this.

So, it’s it’s been a great business for us, you you know, through this last month. Strong, strong results.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: That that would also again, we’re we’re thinking about just the consumer. That would be a a positive indicator indicator for consumer space that’s very discretionary.

Brad Smith, CFO, Central Garden & Pet: Absolutely. So

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: to what extent in the in the Guard segment, some other names I cover, they’re very tied to housing. But I the question I wanna ask is, you know, as we look at this ongoing dynamic in The United States with housing stagnant on the heels of, you know, persistently elevated rates, does it does it does stagnant housing market have an impact for your for your garden business?

Brad Smith, CFO, Central Garden & Pet: So what what seems to impact us the most is the HELOC rate. And, when, you know, if if you you can bifurcate this the spending garden in to two different buckets, kind of the routine, ongoing projects versus, you know, major projects or, you know, a total re landscaping or completely gutting and redoing your garden, this sort of thing that what we call bigger ticket projects. And what we see is that the smaller, weakened warrior projects have continued to to be fairly resilient, but these bigger ticket projects are ones that seem to be, have have been the most sluggish, and it seems to be tied to the HELOC rate. And I think as the HELOC rate is it’s up in the sevens right now, I think. And so, typically, you wanna see it down kinda 6% or below, and that seems to be the magic number where they that opens up the opportunity to to tap in and get some money to do some of these bigger projects.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Got it. So, I do want to go back to when we initially were talking about just the strategy change in M and A because historically your company has been one that’s grown through acquisition. So how should we think about the focus on acquisitions from here?

Brad Smith, CFO, Central Garden & Pet: So it is absolute priority for us right now. We have ample liquidity and, we spend a lot of time beating the bushes on this. As you well know, the market is pretty dry right now in terms of activity. We’re very focused on pet consumables. And there’s a number of companies that are interesting to us, some larger companies as well as some potential strategic bolt ons.

But you know, for the most part, sellers tend to be on the sidelines right now waiting for economics to turn around and uncertainty to die down in the hopes that they can get, a better multiple, and that’s probably somewhat tied to, you know, a a hope that, there’s more private equity money back in the market. So, we’re interested in a number of companies, but they’re, they’re not on the market now. We’re hoping that will turn around, in the next year or so. But it is it is the pet consumable space. If you look at categories within consumables, the ones that are probably most appealing to us would be chews and edibles, for companion animal, dog and cat.

We’re already, strong in the dog space, but we have opportunities to grow there, in a meaningful way. Cat is is is an area where we under index, by a large degree, and that’s a space that we’re very interested in. Unfortunately, the opportunities in cat, tend to be fewer than in dog. But that’s still a space that’s interesting to us. And then lastly, I would say supplements.

Supplements is one we’ve been looking at for years. And that’s a space that I think, that’s a category that I would expect to, for the foreseeable future to continue to grow at above kind of above the average of the other categories, in the aggregate. Very good. And then the adjacencies we’re looking at that I mentioned earlier as well.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Yeah. That’s what I want to explain. So what What would that be? Mean, how should we think what adjacency means?

Brad Smith, CFO, Central Garden & Pet: Yeah. So, I think, you know, what I mentioned earlier was the example of our professional business where, we manufacture formula pet pet sorry, pest control products for different spaces in garden and pet and and and and beyond. And so I mean, expanding that business through a chemical, a non crop chemical company would be would be interesting. That’s probably the best example. We’ve looked at some other adjacencies that are less, that have less of a tie in to, to the businesses that we’ve we’ve you know, that we’re in right now.

I wouldn’t rule them out, but, but but, yeah, the one the example I gave is probably the space that’s that that makes the most sense to us.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: As far as, you know, the the kind of your your footprint, if you will, the the the wholesale partners you deal with, any any changes there? Are there any any newer relationships that have popped up?

Brad Smith, CFO, Central Garden & Pet: Ken, I’m sorry. Can you repeat the question?

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Retailers you deal with. I mean, the the the retailers you sell into. Any anything anything new there with that, you know, that collection of partners, so to say?

Brad Smith, CFO, Central Garden & Pet: I would say no. I mean, we continue to we continue grow and take share online and that’s where the business is going both certainly in pet and increasingly in garden. We continue to grow in the other big channels, the Costco’s and the Walmart’s, Walmart’s, the big clubs that that are that are also resilient in this market. Pet specialty continues to be a challenged category for or or space for us, channel for us. We’re expecting that to continue.

We’re working with them as best we can to help them differentiate their their offerings because, there is a space for them online, particularly local one day service delivery and these sorts of things, services. But they’re in the midst of fundamentally rethinking what their value proposition is to their consumers right now, and, they’re under a lot of pressure. So I would expect it to continue to be a channel that is relevant, going forward. It’s it’s the place you go as a new pet owner and, for for guidance. And I I I think gonna continue to matter, but they’re gonna look different going forward, and, we’ll partner with them along the way.

But I’m expecting that, you know, more and more our business will be shifting increasingly to online and to some of the larger players, Walmarts and whatnot.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Right. So I know our time is going to wind down here. Just a question I always like to end with is on just from a capital standpoint. I mean, anything we should anything notable there with the balance sheet, cash flow, priority priorities for capital?

Brad Smith, CFO, Central Garden & Pet: Priority number one is M and A. And I would say priority number two is internal investment in our existing businesses, to grow the top line. And priority three would be share buybacks. But, we’ve really slowed down on that front recently and we’re really hoping to be able to deploy the capital on M and A in the coming months.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Okay. Well, Brad, I appreciate your time. Thanks for joining us.

Brad Smith, CFO, Central Garden & Pet: Thank you, Brian.

Brian Daigle, Senior Equity Research Analyst, Oppenheimer: Talk soon. Thanks.

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