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Net sales fell to $617 million, down 6%, largely due to retailer spring shipment timing shifts and portfolio rationalization, but improved mix and productivity lifted non-GAAP gross margin by 100 basis points to 30.8% and non-GAAP diluted EPS held at $0.21, above internal expectations.
The Pet segment was steadier (net sales $416 million, down 3%) with strength in rawhide and animal health and share gains, while the Garden segment was more affected (net sales $202 million, down 12%) and swung to a small operating loss from prior-year profit due to timing and category exits.
Central completed the tuck-in acquisition of Champion USA, repurchased ~660,000 shares for $18.5 million, ended the quarter with $721 million in cash/short-term investments and 2.9x gross leverage, and reaffirmed fiscal 2026 guidance of non-GAAP diluted EPS of at least $2.70.
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Central Garden & Pet (NASDAQ:CENT) reported fiscal 2026 first-quarter results that management said reflected improved gross margins and “solid” earnings per share despite a sales decline driven largely by shipment timing and ongoing portfolio changes.
Net sales totaled $617 million, down 6% year over year. Chief Financial Officer Brad Smith said two factors accounted for “substantially all” of the decline: a shift in retailer spring inventory shipments (particularly in Garden, and to a lesser extent in Pet) and continued portfolio optimization aimed at improving margins and long-term profitability.
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Smith said fiscal 2025 seasonal load-ins were unusually concentrated in the first quarter, while this year a larger portion shifted into the second quarter. He also cited ongoing rationalization of lower-margin categories (including pet durables and select live plants categories), the closure of the company’s UK operations, and a transition of the European business to a “more profitable direct export model.”
Additional items discussed included the continued transition of two third-party product lines in the garden distribution business to a direct-to-retail model (expected to be completed in the fourth quarter) and a temporary shipment hold with a large pet customer that began in the fourth quarter and was resolved late in the first quarter. Smith said those two items were “relatively smaller” and were offset by growth in rawhide, wild bird, and animal health.
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On a non-GAAP basis, gross profit was $190 million versus $196 million a year ago, while non-GAAP gross margin expanded 100 basis points to 30.8%, driven by productivity gains and improved mix. Non-GAAP SG&A expense was $166 million, down 1% year over year, though as a percentage of sales it rose to 26.8% from 25.5%.
Non-GAAP operating income was $24 million compared with $28 million, and non-GAAP operating margin was 3.9% compared with 4.3%. Non-GAAP adjustments tied to the company’s “cost and simplicity” agenda totaled $7 million, primarily in the Garden segment and largely related to facility consolidation activities.
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Central posted GAAP diluted EPS of $0.11 and non-GAAP diluted EPS of $0.21, consistent with the prior year and, according to management, above internal expectations. On the call, CEO Niko Lahanas attributed the EPS outperformance primarily to mix, noting the company received orders in higher-margin businesses that “dropped to the bottom line.” Adjusted EBITDA was $50 million, down from $55 million a year earlier.
Pet segment net sales were $416 million, down 3%, reflecting portfolio optimization, shipment timing shifts into the second quarter, and the temporary shipment hold. Those headwinds were partially offset by growth in rawhide and animal health, particularly in professional and equine. Smith said consumables grew at a low single-digit rate supported by favorable point-of-sale trends.
Management said the Pet segment held share overall, with gains in dog treats, flea and tick, pet bird, and the professional portfolio. Non-GAAP operating income was $50 million versus $51 million, and non-GAAP operating margin improved to 12.1% from 12.0%. Adjusted EBITDA was $60 million, unchanged year over year.
On durables, Smith said the category represented about 16% of Pet segment sales in the quarter, consistent with the fourth quarter. Durables declined “north of 20%,” with about two-thirds of the drop attributed to a timing shift in the cushions business from Q1 to Q2 and the ongoing exit of the tank business. Management said that after Q2, those impacts should be largely lapped, with year-over-year changes in durables expected to move into the single digits in the back half.
Garden segment net sales were $202 million, down 12%, reflecting shipment timing, the transition of two third-party distribution product lines, and further rationalization of live plants categories, partially offset by growth in wild bird. The company said it gained market share in Garden, including in wild bird, fertilizer, and packet seeds.
Non-GAAP operating loss for Garden was $2 million compared with income of $2 million a year earlier, as shipment timing more than offset productivity gains and cost discipline. Adjusted EBITDA was $8 million versus $14 million. President of Garden Consumer Products J.D. Walker emphasized that the first quarter is seasonally smaller for the segment and said it would be “premature” to draw full-year conclusions with the core selling season still ahead.
Lahanas said the company’s multi-year cost and simplicity work has built a leaner operating model, with benefits from supply chain network design improvements in customer alignment, service levels, and cost efficiency. During the quarter, Central integrated two garden distribution facilities (Lawrenceville, Georgia, and Ontario, California) into fulfillment centers in Covington, Georgia, and Salt Lake City, Utah, and consolidated a fertilizer manufacturing facility into its Greenfield, Missouri location.
As foundational transformation efforts mature, management said it is placing greater emphasis on fostering a growth mindset and embedding innovation across the organization. Lahanas cited examples including innovation at Nylabone, expanded digital engagement through KT’s “Birder Hub,” early consumer response to new garden and household solutions, and momentum in private label programs developed with garden retail partners.
Cash used by operations was $70 million, similar to last year, reflecting what management described as the company’s usual first-quarter working capital build. Inventories increased $20 million versus the prior year, which Smith said was primarily due to shipment timing. Capital expenditures were $11 million, up from $6 million, with investments focused on productivity initiatives and essential maintenance.
Central repurchased approximately 660,000 shares for $18.5 million, with $28 million remaining under its authorization at quarter-end. Cash and cash equivalents plus short-term investments totaled $721 million, up $103 million, which Smith said was after the working capital build and the acquisition of Champion USA. Total debt was $1.2 billion, and gross leverage was 2.9x, below the company’s stated target range of 3.0x to 3.5x. Net leverage was approximately 1.2x, and the company had no borrowings outstanding under its credit facility at year-end.
After the quarter, Central completed the acquisition of Champion USA, described as a small tuck-in business serving the livestock industry with EPA-approved feed-through fly control solutions. Management said the deal complements the professional portfolio and aligns with a focus on consumables and environmentally responsible solutions.
The company reaffirmed its fiscal 2026 outlook for non-GAAP diluted EPS of $2.70 or better. Smith also reiterated expected capital expenditures of $50 million to $60 million. In addition, the company maintained its estimate of incremental year-over-year gross tariff exposure of roughly $20 million for the fiscal year, concentrated in the Pet segment, with mitigation planned through pricing actions, portfolio management, and supply chain initiatives.
In Q&A, executives said early indications in January showed stronger shipments consistent with the timing shift into the second quarter. Walker said total distribution points for products Central manufactures were up 14% year over year, and he described retailer support for promotions and off-shelf activity as strong. On consumer demand, Pet Consumer Products President John Hanson said category data suggests stabilization, while the live animal business posted low single-digit growth in both Q4 and Q1. Management also said it expects to remain active in both M&A and share repurchases, noting improving deal activity and the company’s flexibility to do both.
Central Garden & Pet (NASDAQ: CENT) is a leading North American specialty retailer, manufacturer and distributor serving the lawn and garden and pet supplies markets. The company operates through two primary segments: Pet and Garden. In the Pet segment, Central Garden & Pet offers a comprehensive range of products including pet food, treats, accessories, training products and habitat solutions for dogs, cats, birds, fish and small animals. The Garden segment encompasses a wide array of lawn, garden and outdoor living products, such as soils, fertilizers, planters, pest control solutions, landscape lighting and watering equipment.
Central Garden & Pet’s product portfolio includes both proprietary and branded offerings.
The article “Central Garden & Pet Q1 Earnings Call Highlights” was originally published by MarketBeat.
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