Central Garden & Pet Company

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden and PEDS Fiscal 2025 Second Quarter Earnings Call. My name is Zico and I will be your conference operator for today. At this time, all participants are in listen-only mode. Following the prepared remarks, we will hold a question and answer session and instructions will be given at that time. If you require operator assistance at any point during the call, please press star followed by zero on your touch-tone phone. As a reminder, this conference call is being recorded. I will now turn the call over to Frederic Edelman, Vice President, Investor Relations. Please proceed.

Good afternoon, everyone, and thank you for joining Central's second quarter fiscal 2025 earnings call. Joining me today are Nico Lahanas, Chief Executive Officer, Brad Smith, Chief Financial Officer, Joan Hansen, President, Pet Consumer Products, and JD Walker, President of Garden Consumer Products. Nico will start by sharing today's key takeaways, followed by Brad, who will provide a more in-depth discussion of our results. After their prepared remarks, JD and John will join us for the Q&A session. Before we begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of Central's risk factors can be found in our annual reports filed with the SEC. Please note that Central undertakes no obligation to publicly update forward-looking statements to reflect new information, future events or other developments. Our press release and related materials, including gap reconciliation for the non-gap measures discussed on this call, are available at ir.central.com. Lastly, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any additional questions after the call or at any time during the quarter, please don't hesitate to contact me directly. With that, let's get started. Nico?

Thank you, Frederic, and good afternoon, everyone. I'd like to begin by outlining the three takeaways from today's call. First, a solid second quarter driven by outstanding execution from Team Central. Second, further advancements in streamlining our business and enhancing efficiency through footprint consolidation, portfolio refinement, and cost structure improvements setting us up for future growth. And third, confidence in our outlook for the year, even as we navigate a more challenging environment in the second half of the fiscal year. Now let me expand on these points. First, our second quarter achievements. As previously indicated during our first quarter earnings call, the earlier timing of preseason orders and promotional events shifted sales forward into the first quarter, leading to softer sales during the second quarter Compounding this, unseasonably cold and wet weather in March delayed the start of the garden selling season, further impacting sales. In addition, the loss of two product lines in our third-party garden distribution business placed additional pressure on our top line. Nevertheless, our team's focus on execution drove growth in both GAAP and non-GAAP earnings per share, meaningful margin improvement, and record non-GAAP operating income within our pet segment. A particular highlight of the second quarter was the performance of our wild bird business, which benefited from the extended cold weather and achieved record sales. We're extremely pleased with the consistent growth these teams have delivered over time. Moreover, our e-commerce sales performance remains strong, reflecting the continued success of our enhanced digital capabilities. We're proud to report that our brands held the number one online sales position in both the wild bird and grass seed categories. These achievements are a testament to the dedication, resilience, and hard work of our over 6,000 employees who continue to drive our success and position us to build an even stronger future. Second, cost and simplicity program. Our cost and simplicity program continues to deliver significant results. Completed initiatives are producing tangible benefits, and we are introducing new projects. Highlights of the second quarter include e-commerce expansion. We recently upgraded our distribution center in Easton, Pennsylvania by adding direct-to-consumer or DTC capabilities. The facility is already delivering strong results, having shipped more than 10,000 packages directly to consumers. With enhanced capacity, the center strengthens our ability to efficiently manage and fulfill both our own DTC business, as well as drop shipments for our retail partners, fueling our growing e-commerce momentum. Designed with higher ceilings and more doors to move product quickly, the upgraded center not only improves operational flow, but also significantly enhances employee safety, a top priority for us. Building on this success, We are excited to be on track to consolidate two older distribution centers in Ontario, California, and Salt Lake City, Utah, into a new DTC-enabled facility in Salt Lake City later this fiscal year. This move should further strengthen our logistics network, drive significant cost savings, and position us for future growth. Optimizing our logistics for growth, we are pleased to announce the opening of our new 300,000 square foot dog and cat distribution center in New Jersey. This facility centralizes all warehousing, shipping, and receiving operations for the business unit, including direct-to-consumer picking, packing, and shipping. This expansion is a major step forward in boosting productivity and operational efficiency, while positioning us for continued growth in one of our fastest-growing categories, right-sizing our footprint. In our pet segment, we began winding down our UK operations and are transitioning to a direct export model servicing the UK and certain European markets directly from the United States. These initiatives are integral to our broader strategy to streamline central, enhancing agility and efficiency. They position us for margin expansion while freeing up resources to drive organic growth, pursue strategic M&A, and uphold our commitment to social responsibility and environmental stewardship. Third, confidence in our outlook for the fiscal year. We delivered a strong first half with earnings well above the prior year period. Looking ahead to the remainder of the fiscal year, recent tariff actions and related geopolitical tensions have significantly increased macroeconomic uncertainty and weighed on consumer confidence. Assuming current tariff rates remain in effect, we anticipate heightened inflationary pressures in the second half. particularly within the pet segment. As a result, we expect the following. Increased consumer caution and a heightened focus on value, a more promotional retail environment, and further pressure on the pet specialty brick and mortar channel. Given the increasing unpredictability of weather patterns evident in this year's delayed start, we factored this variability into our forward-looking expectations. Importantly, When conditions are favorable, consumer engagement in lawn and garden remains strong. And with the bulk of the season still ahead, we remain cautiously optimistic on the remainder of the garden season. After carefully considering the uncertainty ahead and our plans to manage the second half, we are reaffirming our fiscal 2025 guidance for non-GAAP EPS of $2.20 or higher, underscoring our commitment to delivering long-term value to shareholders. Looking ahead, we will continue to prioritize discipline, cost and cash management while investing strategically in organic growth, particularly in e-commerce, digital technology and innovation. Our M&A strategy remains focused on accelerating growth initiatives, expanding capabilities and strengthening our portfolio for the future. With that, I'll turn it over to Brad.