Central Garden & Pet Company

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden and Pets' fourth quarter fiscal 2020 financial results conference call. My name is Victor and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If anyone should require assistance during the call, please press the star followed by the zero on your touchtone phone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Frederica Edelman, Vice President, Investor Relations. Please go ahead.

Thank you, Victor. Good afternoon, everyone. Thank you for joining us. With me on the call today are Tim Cofer, Chief Executive Officer, Nicola Hannas, Chief Financial Officer, J.D. Walker, President Garden Branded Business, and John Hansen, President Pet Consumer Products. Our press release providing results for our fourth quarter and fiscal year, end of September 26, 2020, is available on our website at ir.central.com. Also on the website is the gap to non-gap reconciliation for the non-gap measures discussed on this call. I would like to remind you that statements made during this conference call, which are not historical facts, including EPS and other guidance for 2021, expectations for new capital investments, product introductions, and future acquisitions are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements. These risks and others are described in Central's Securities and Exchange Commission filings, including our annual report on Form 10-K, expected to be filed tomorrow. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events, or otherwise. Now I'll turn the call over to our Chief Executive Officer, Tim Cofer. Tim?

Thank you, Frederica. Good afternoon, everyone, and thanks for joining the final earnings call of our fiscal 2020. Before we dive into the specific results, I wanted to provide some thoughts on the year and why I'm more confident than ever in our company and the industries in which we operate. This has been an extraordinary fiscal year. COVID-19 tested the world and our business in ways we could not have predicted and presented the most challenging operating environment in our company's 40-year history. And yet, despite the uncertainty that the coronavirus continues to present each day, our people have seamlessly navigated the challenges and opportunities, and we have delivered the strongest year in our company's history. These historic results were not by happenstance. They are a result of the continued dedication of our people, the strength of our industries, unparalleled consumer demand, and the early results of our long-term strategy. Over the past fiscal year, I've been proud to witness how our teams prioritize the safety and well-being of their colleagues while also responding to the constant changes to ensure our business can continue to run efficiently and with excellence. It's been a chapter that has reinforced our commitment to our employees and their unwavering dedication to each other and our consumers. I continue to be sincerely grateful to our employees for their commitment, creativity, and collaboration I've seen throughout the year. Together with our customers and supply chain partners, They've done a tremendous job to ensure our business operates as safely and as seamlessly as possible in these challenging times. This fiscal year also reinforced the resilience of our industries. We saw record consumer demand and expanded consumption across both pet and garden. New consumers found comfort in adding pets to their families and investing in their gardens. while we saw increased spending from existing consumers. Lastly, we were able to respond to the needs of the business and pivot to meet the changing environment thanks to early wins and investments from our Vision 2025 strategy, including evolving core capabilities like e-commerce and digital marketing. Consumers increasingly turn to e-commerce to purchase products for their pets and gardens and we were able to respond and deliver. As consumer spending habits continue to evolve towards online, omnichannel, and digitally-led solutions, these investments and new capabilities should position us for continued success. I'm confident that our exceptional employees, our commitment to consumers and customers, our attractive and resilient industries, and our ongoing dedication to innovate, grow, and deliver will take us to even greater heights in the years ahead. We look forward to sharing more about the industry trends and tailwinds and how our new strategy will specifically address these opportunities at the company's first investor day next week. Now, let's quickly turn to our results for the quarter. As you know, typically Q4 and also Q1 are our smaller quarters. This year, I'm proud to announce that after a record third quarter, Central delivered another record quarter with respect to both net sales and operating profit. Net sales for the quarter increased 25% compared to Q4 2019. This strong growth was entirely organic driven. since we have now lapped our recent acquisitions. In addition, gross margin increased to 29% and improvement of 150 basis points compared to the prior year, primarily driven by a favorable mix of product sales and pricing. This culminated in the record Q4 earnings and EPS that we announced in our press release. As I mentioned in my opening reflections, I could not be more proud of our teams and all they have overcome this year to achieve our company's strong results. Net sales for the year increased 13% versus prior year. The increase was largely driven by organic growth of 11% with broad strength in both segments and to a smaller extent by our 2019 acquisitions, Arden and CNS. Now, Let's take a deeper look at both of our operating segments. First, our garden segment. We reached two milestones this year, $1 billion in net sales and $100 million in operating profit. Weather patterns have been the best we've seen in many years and were almost ideal for gardening. We saw record gains in our distribution business, controls, fertilizers, and live plants. In addition, the garden industry continues to benefit from consumers spending more time at home, caring for their lawn and gardens, and making their outdoor spaces even more enjoyable. We believe that some of the increased consumption among existing consumers, as well as new consumers entering the category, will potentially extend into the future, similar to the patterns experienced in prior recessionary environments. Additionally, while garden products have historically been underpenetrated in e-commerce, partly due to the bulkiness of many products, we saw a clear acceleration online in 2020. We believe this trend is here to stay, which further confirms the importance of our strategic focus on e-commerce and digital marketing. Next, turning to the pet segment, we saw record gains in pet consumables, distribution, and animal supplies and health. The pet industry is also experiencing benefits from consumers spending more time at home due to COVID-19. Increased pet ownership continues to be a fundamental driver of the strength, and this gives confidence in the mid to long-term growth prospects of the pet industry. Similar to garden, Our pet segment enjoyed a significant acceleration in e-commerce. We are working closely with our retailers and distributors to meet the dramatic increase in online demand. Our e-commerce business now represents about 20% of total pet consumer brand sales, a significant increase versus prior year. All indications suggest this shift in consumer behavior is lasting and we are increasing our investments in the strategic focus area. All in all, also a great quarter for our pet segment. It's worth noting that despite our outstanding results, our supply chain remains stressed due to the tremendous increase in demand for pet and garden products. This challenge first presented itself in the third quarter when demand skyrocketed across our business. We expect continued pressure on our supply chain in fiscal 2021. In addition, we are facing higher key commodity prices, freight and labor costs, and increased spending on the necessary and ongoing safety measures for our employees. As with the entire country, we are seeing our COVID cases on the rise in recent weeks, and we have further enforced our employee and supply chain safety protocols to ensure we are doing our part to help prevent the spread of COVID. Together with our suppliers and customers, our teams are hard at work to identify creative ways to meet consumer demand expand our capacity across numerous businesses, and prioritize the health and safety of our employees. In closing, I want to once again thank every central employee for their hard work that went into making this quarter and our fiscal year such an extraordinary success. I'm looking forward to sharing more about our long-term strategy and our framework to deliver sustainable, profitable growth next week at our investor day. I encourage you to join us on Thursday, December 3rd at 1 p.m. Eastern time at ir.central.com. With that, let me turn it over to Nico, who will share more details of our Q4 and fiscal year results. Nico.