CENT - Earnings call transcript Q2 2020 | Central Garden & Pet Company

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet Second Quarter Fiscal 2020 Financial Results Conference Call. My name is Devin and I will be your conference operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. at given be will that time. Instructions Instructions] [Operator

a now like this Machek. go is over conference would I Please recorded. being ahead. to Howard As to reminder, turn call the

Howard Machek

afternoon, us. Good Thank for Thank joining you. everyone. you

Chief With me today Business; Walker, Niko call on and J.D. John Chief Officer; Garden Pet Executive Consumer Cofer, Financial Products. are Lahanas, President, Officer; Tim the Central’s Branded Hanson, President,

and March contains release call. results GAAP discussed website for XX, ended XXXX providing quarter our measures is press reconciliation Our at non-GAAP second www.central.com the to non-GAAP for on available our the this on

organic Before those by product COVID-XX over made like subject during turn our forward-looking new are for on future cause the not actual Tim, differ statements goals, to and call, conference revenue, I including results uncertainties which could acquisitions, are statements business, savings expectations I cost would the call margin that this historical implied that growth of remind to impact instructions, forward-looking you from long-term facts, statements. to potential expansion, profitability to and risks future materially

on risks XX, no others update These subsequent events forward-looking Central’s including filed our Central described Securities XXXX. Annual statements and Report in reflect obligation XX-K Form to Commission new information, Exchange undertakes on and are publicly to filings, these November or otherwise.

Tim Tim? Cofer. will I CEO, over the turn our Now, to call

Tim Cofer

who call. affected I for The our has professionally you to this been crisis afternoon, and of all, COVID-XX turbulent joining want everyone, QX thank to first go Good a pandemic. out time health Howard. and earnings my for been global Thanks, families. those hearts to and best have you extend your by personally and all us wishes our

crisis. observations I’d care COVID-XX to like teams consumers to I’ll been into our the our have with how quarter. provide working for our performance during insight of employees, take the personal Then, and some and an customers of some overview start

humbled the collaborating our been in operates essential the done health to as employees considered months, by while have all the our meet that few safety at they possible. to as last across Because I’ve jurisdictions, ensure prioritize enterprise team-members, needs, the are Over and fellow essential our to seamlessly business employees is almost floor, of whether home. to continue in work stores on most an all production or Central of business

to our I sincere organization, in logistics in gratitude your to and manufacturing, working employees everyone my merchandising efforts and To want for express recognize want commitment. I your our especially roles.

and continue this have do crisis You your to of you jobs and every with you. on the been day frontline courage integrity. Thank

The safety team’s wellbeing cross-functional business, early attention. our on task-force developments. issues focus coronavirus and leadership COVID-XX paramount. in has we full is of mobilized employees the needs of pandemic address critical to related the quarter, timely To to a our And the our

manufacturing, procure the around shifts Given supplies communication do hard benefits; to three, safety procedures, and equipment and and the enhance those including have two, following: safety information of pertinent health, in protection constant merchandising the in realities current staggering for ensure logistics regular to regularly worked add share management, environment, home and and facilities; seamlessly implementing necessary deep sanitation teams working work and sales, while of enable team to large and customer five, here cleanings, one, personal investing our our continuing IT in accordance employees accounting four, orders, work our support local, stellar with this across a to finance, effort; place to service, has federal requirements. distancing done social securely number from and all shelter state and and order to in handle roles;

the we to X,XXX for approximately case, need employees they work very the virus. in as been test we’ve and recover. have received employees, a fortunate And sites positive of each they they XXX only small care to than more ensure With proportion

Our are who are with virus. thoughts the battling still those

to results, with customers our QX in to collaborating and suppliers, needs. communication we’ve turning constant consumer meet Now, been

As prior you press growth saw our in versus year. was release, quarter overall in sales the X.X%

growth acquisitions. our C&S recent was and by driven sales Arden Our

were X% versus dilutive exclude last the X.X% almost prior of up strategic fashion-oriented product the and sales year, Organic grew you pottery also line. exit year’s of when impact

In our sales Garden were organic Pet down sales while segment, up X%. were organic X%

exit, flat of roughly impact Garden the Excluding the prior fashion-oriented year. was versus pottery

few pet more in were continued products as to edibles, March, offset stocking due live We notable pet impact more bedding. and health gains and apparent. and saw consumables animal supplies COVID by last Demand small in surge fish in the than animal consumers distribution. up driven a weeks on Pet the of became headwinds

a Garden live plant product line lines. seed as soft pottery grass feed offset start headwinds by were in exit distribution bird was our season. year’s impacted to business, garden and our by These growth well wild as partially last

All in, compared quarter for XXXX. EPS, $X.XX we up delivered second in of $X.XX, to the $X.XX

prior versus portions our latter given impact the our financial the results And fourth the in the growth EPS in COVID-XX of of quarter. impact in our impact the the part in third expect on and unfavorable March, we began of while with especially most manifest pleased quarters. to will year, portfolio of be our We’re COVID-XX that

to impacted you across evolving me saw we in crisis we color rapidly That timeframe. and give behavior. is Obviously, this effects and see categories, it some situation, both the our that the consumer what around impossible will us customer as given predict unprecedented in March let said, and for April

businesses COVID-XX. other and we’re in any due What the recessionary is varying Central seen unlike past. with environment we’ve the And dealing Garden seeing is to to today Pet impacts

On January to in and was the plan according our tracking Pet February. business side,

rolled in in channel, an was e-commerce as dramatic out. This in consumer pronounced increase spikes, our In saw most shelter-in-place we March, seen pet mandates spending have we where consumables. were especially

pet from dog has of adoptions been cat business Another favorable to record the impact our and shelters. level

pet their and consumables. and animals. favorable bodes pet Offsetting is mortar as more of the time slowdown plan have companion retailers. of habitats, seen a well increasing the This impacts, and supplies at comfort clearly these ownership specialty in seek for brick Pet people spend we to longer-term sales and home joy

for have live retailers discontinued their pet temporarily business pet This many and addition, fish. small impacted birds animal April. order patterns and In in our March negatively animals,

Now to garden. shifting

to in QX saw late product NURSERY our consumption with The year. prior solid, which March some access saw live and lines, garden foot of drop in and plant garden the the were departments, were consumption finished particularly impacting momentum traffic our the line we limited metrics garden pleased quarter April category. of with business. due in we business core Our in-store the curtailments to roughly and We are outdoor BELL

to crisis is the place takes with that mid-March COVID-XX coinciding which season, peak from garden want I note also typically June. through

effects encouraged of pandemic slowly plant of see to are during feeling year. is departments We the business important our time but the live reopen, this the

Further, the least headwinds to are and that So on COVID portfolio some can the partially across believe to having medium- our pandemic. the offset the firmly of portfolio, is as you I tailwinds like pet garden and and thrive is a see, impacts customers. are at one Thankfully, continue of in benefits evolving mixture ours our long-term. there help consumers of an industries of will there

is there obviously uncertainty unprecedented However, near-term. the in

the suspending give guidance XXXX the the and to time. many pace COVID-XX guidance lack of like until at situation this attempting U.S. prudent the are providing is not visibility of for companies, Accordingly, stabilizes. we financial fiscal Given in temporarily think do change, we

when will the third will We at quarter. revisit updates provide end the appropriate of question and guidance the

daily As sight continue realities want of we I navigate future. losing the are not assure our COVID-XX, to to of you we

of which, quarter, of shared our we’ve most redirected have of key we priorities, enterprise Vision the near-term XXXX. employees, longer-term remained our and on I our efforts continuity resources has labeled and the safety in last health time strategic While focused our portion business as a to our ongoing

e-commerce; to create marketing pandemic Addressing to reinforced and that build evolving M&A the more the Central’s including: further our than for growth; It’s importance the and has invest value of and for important core shareholders. pursue capabilities, organic us ever needs business. innovation; strategic opportunistic of only in digital continue

refocus define on energy normal We the when our growth strategy. a look can resources long-term and and out to in forward we new post-COVID-XX time our our and future building

closing, other long-term and how are In bolsters the team time. It in further proud could here they I at great this each challenging confidence potential the persevering of resiliency and be this more strong of not through supporting my Central and company.

Niko, and that, CFO, me it our of to of With more the segments. Pet our over Garden QX details share both to let turn and across Niko? company

Nicholas Lahanas

Thank you, everyone. afternoon, Good Tim.

million closer up Pet impact pottery of Organic $XXX quarter. sales also sales to $XXX Second from gains $XX as exclude Acquisitions were quarter last primary half you mentioned, for Tim were second million, revenues of by the quarter the in when million total in our sales aided sales of X% of a organic were million the point, segment. $XX And gain, the company increased X%, accounting the exit. the drivers or to in up year.

gross the Consolidated $X the of businesses. million, negatively quarter volumes margin while pottery XX.X%, decreased unfavorable basis and to live profit mix the XXX points impact by gross sales for fish lower impacted our and of increased in

SG&A or the spending by costs This lower decrease driven million and and X%, expense a administrative corporate transportation higher was inorganic for $X spending. base the by partially in quarter offset business decreased versus ago. year

costs. expense increase Our primarily insurance health higher to corporate due was

of basis XX.X%. decreased SG&A As a XXX percent sales, to points

asset a due of $X.X $X.X owned X million in the as to our exit major prior live a included business from position Arden, minority a intangible million of impairment in non-cash charge fish reminder, As write-up XXXX. by are an and retailer year a February previous the of XXX% items, SG&A

and and basis for increased by to margin, increased gross to operating from to Central’s to lower acquisitions. Offset $XX X.X% due operating quarter million, expenses XX SG&A lower for quarter the the margin X% income EBITDA increased million. accretion $XX points

rose segment. to $XX on million $XXX X% for the Pet grew quarter organic the Pet million, an now and or X%, sales segment’s to Turning basis.

mentioned, aided by loading in the and strength As sales pantry consumables. pet Tim COVID-related late-quarter organic were

headwinds supplies pet saw were fish also continued small We animal partially animal gains in health businesses. offset by and strength live and our bedding. in These

the income operating million a operating charge $X.X $XX X%. points prior live compared million. total $X by to Pet gains increased segment were year the of for fish. impairment year, XXX Pet lapping to also in the or basis approximately margin increased XX% quarter million, to by aided by prior These

mentioned increased XX previously. the the EBITDA strength Excluding by the to Pet for impairment, basis quarter driven increased XX% $XX segment organic million. Pet points, margin operating

Garden. Turning to

$XXX Garden inorganic contributions sales acquisition. or $X by For the quarter, driven Arden the X%, million rose segment to from million,

X%, and excluding roughly driven the flat. segment base declined strength exited and live Arden, to season, by offset start Garden’s our business, plants. bird in seed artisan partially sales wild pottery was exit garden business, Excluding distribution, by organic our soft pottery grass a

largely was due a seeing little our as heading our grass provide season context lag our some of inventory consumption. as more position To to are the result on as pattern we a currently, soft shipments order This into fall results, well healthy timing. seed

the line the year Garden in operating the quarter XX% XX to and in write-up at operating million XX.X%. year Arden a included of for gain $X.X million, upon with acquisition. to prior $XX segment basis of roughly income Prior points margin was related declined interest results initial

Excluding EBITDA ago. this points. for increased roughly was the year quarter segment a flat Garden basis Garden gain, operating also margin XX million, versus $XX

interest a year Now, increased interest results. earned $X $XXX,XXX softer expense interest on primarily income as getting the lower declines. million, due drove expense back other cash balances we to our million million $X to second compared ago. $X market income to a of had In other quarter, to rate consolidated of Net

Our $XX.X% ago. for to quarter was the quarter year tax second a rate in as compared $XX.X% the

end our the flow second million, up $XXX quarter Cash increased statements. to last second quarter million the at from of the end of and $XXX at to cash balance Turning sheet year. the

$XX capital of working the changes net as by quarter operations favorable primarily increased the For used $XX due net million cash quarter, used year cash inventory the in in a was well ago as second million to versus EBITDA. in

quarter last from from CapEx time year. $XXX million the million XXXX. the increased down of to $XX million Total in million, $X $X same was second debt

of target of range. to ratio Our our under the million leverage times end decreased at line. no the our the had At borrowings second quarter X.X quarter, we end credit gross the $XXX within

economic However, million $XXX environment. COVID-XX in uncertain April, to we navigate drew financial flexibility increase as down we an

related. Depreciation largely increase was for million, quarter from the acquisition $XX and a year and $XX up the ago, was amortization million

additional During approximately the There of million XXX,XXX or under the program, the million stock. authorization. our quarter, an share dilution equity $XXX previously under remains shares $XX Board’s repurchased authorized shares we repurchase XXX,XXX Board’s

upon crisis, will As third Tim revisit given guidance uncertainties of earlier, completion our current earnings and mentioned previously withdrawn the on the XXXX we our COVID-XX of quarter. issued have

questions. for line the open please operator, Now,

Operator

you. Thank

We Chappell be with Instructions] SunTrust. conducting Please comes Your Bill your question. question-and-answer from will line with now first a proceed question the session. [Operator of

Bill Chappell

safe. and Hope families Thanks. are you that your Good afternoon.

Tim Cofer

Bill. Thanks,

John Hanson

Thank you, Bill.

Nicholas Lahanas

Thanks, Bill.

Bill Chappell

first of at can pet to base to So, you have you. specialty compared and April, to was just I as and both higher way have food especially small what any question, look pet even March I Pet Garden because is closed? Just guess, quantify the we there you that a understand ScottsMiracle-Gro, the percentage exposure companies or like, and

of color kind would helpful. there any be So

Tim Cofer

Tim Yeah. Do Bill, the Cofer. you you you closed, Do When mean just want to this facilities? retailer is to footprint? you to customer Good talk say mean clarify. again. our I

Bill Chappell

Yeah, shops. specialty retailer customers, the so the small

Tim Cofer

small saw and pet versus business. in we side, on e-comm. on we in animal it And our small saw we live saw independents, Yeah, was brick-and-mortar what the particular, so obviously, it acute, it most in

animal So you fish, live small bird. got business, small would mammal, a know, we’ve

the temporarily shelter-in-place. and for close to accepting we begin pet in particular, And pet during particular, of independent down in period saw And national stores animals. curtail we time large saw stop live stores a small, traffic,

So, of units, business our and business that then part look impacted when it that you was that was channel. across the most it was

treats more is addition, very our our business, durables, fared well throughout think pet I’d slightly side whereas goods, dog consumables the time, during less have this hard of that period. tell broadly, COVID one In pet you well fared example, this bedding, think what as

Bill Chappell

of or gave what know just have like it, any read – April for businesses Got both kind update of early then, for there? if to looks any it. on any And month I got POS or update switching you the don’t

Tim Cofer

e-commerce. POS from garden. standpoint, we a quite break robust, strong and Yeah, on it explosive our honestly, both We obviously, as Sure. consumer channel remains pet of or consumption, you growth businesses, on see, see down both customer,

on a And particularly on We have side e-commerce. on Garden seen is weeks our side. some growth e-commerce, base Pet triple-digit strongly our very smaller off growing

of they of foot what to some area Garden some or our here, our departments. side, retailers that of we’ve is plant seen retailers, in the how big customer there different have I that either the is On changed maybe business to time. one particularly policies given hours certain across live challenges, big outdoor for the live you limiting guide big-X, is again, traffic opening of differences And slightly the biggest period the it access given a terms

the you tell consumption we would and POS standpoint, and are I from demand pet continued though, on garden encouraged garden. standpoint, Broadly a pet both consumer that, by in both

Bill Chappell

it? back first certain passed the right of so at It Got do areas, sales. one – too it. guess, out those size to the season is season, me that of season, the how look work? I And mean, that you like be growing Garden just then kind we’ve And like, And grass does then work? then the sounds BELL last you grass miss I seed, the lost exactly inventory, I mean, break the side. the ran just how I that seed on of certain or for for in you of on you’re into just get a tell guess, and a I those to does me, the plants imagine stocks. happens? business, destroy plants that big what Or break look on it way

Tim Cofer

ask let’s Yeah, J.D. Walker.

Bill Chappell

Hey, J.D.

J.D. Walker

grass part seed take Sure, question Bill. the business. I’ll of with first your the

In terms of the past of the seed season, we we’re grass the said portion season.

the broken but northern many yet. markets, them markets, in it past We’re the of southern haven’t

consumption. mentioned fairly in seeing believe robust was carried that. I and We still inventory script, the seed we’re some So Niko that grass

was COVID-related. a fall in fall, it’s if poor business unseasonably seed factor And the late from inventories into those then, inventories. late into unwind heavy the season carried inventory fall And seed hot to grass the we season. the of time and some a carried so October, recall, lot into missed some taken for pretty was you another We season, spring, grass

up. We independent export in the decided in our seed market. exporters affected The export do on and It’s as market it or export much some. business well. off a channel have Other not sold pro-turf that’s has channel, they’ve sit the and to pretty dried been difficult that

for business. have seed So factors the grass headwind been the combined a negative

Then of hit business, grow it. the for specific on BELL you a They period on time.

period stores maintain we – those time. either or a But they we plants can Now, those in of for material. end scrapping over the up time, to sell have that

front us fortunately, of Now, of a in remains season well. that still lot as

of the April, peak a headwind for in had that the we month business but May. is So

categories, is our on products. has when We’re favorable, and good been customer seeing weather weather has touched is to robust The this, our Tim favorable, the underlying of it when is the the all the strong access has favorable. incredibly here and quite and consumption for demand news POS when been

the the are garden. on no access So to store and there headcount outside free store limitations of in areas like

underlying health incredibly the the So is of business positive.

Bill Chappell

much. so Thanks safe. Please it. Got stay

Tim Cofer

Thanks.

Operator

Thank you.

question next JP from question. with Morgan. Please comes your Peter with the Grom proceed of line Our

Peter Grom

afternoon. good you doing well. are all Hope and Thanks

Tim Cofer

Hey, Peter.

John Hanson

Thank you, Peter.

Nicholas Lahanas

Peter. Thanks,

Peter Grom

briefly a Tim, we to And to picture ask I some term? know that all recognize So reinvestment stronger wanted near-term your while I but in question how year challenges XXXX. of be handle set to a Vision prepared the drive the you of up around And do maintaining a focus growth. this the think that year longer discussed you I bit bigger remarks, top-line topic was on

areas outbreak few they or are than at your more a the were focus changed important influenced plan of game Maybe some Has all? now ago. months

be be offer think I would topic, the you’d anything on to helpful. Thanks. Just willing

Tim Cofer

efforts on X number and focus ensuring of and first, strategy business. future. company our X Vision at course take Yeah, safety reinforce is next out and now of continuity can’t to continuing right this XXXX do good a the laying Peter. business aimed Thanks, will And want we some That well-being employees, that, into I really is be running our charting the moves evolved to lose said, evolved and are around that my and focus and the well, our years. number many sight our

we couple have months, as of that these changed During a of last body approach our to work. bit relates it

priority and imagine, this business shifted safety to As around might continuity the you daily pandemic. quickly

time, CEO, repurpose we a Peter, Having team including enterprise we so down the can activity. priorities. did longer-term mine of tell I of as said that slow and you things, a on did And our few some strategic that, has remained portion

specifically, those anything, weeks. a cite company this that transformation I there of more a environment, clearly our and question e-commerce beginning your XXXX result continue as on urgent. I’ll triple-digit couple anything had to per in And work a we’ve digital if were growth of efforts to it mean, one I if To COVID need Vision channel. pronounced aspects from mentioned, that and are more we are relates some is last to the that as the now. our our on accelerate Bill, question as

pleased Pet, that to very is though, ability And more demand say, that. those in in John that actually our and explosive of weeks There’s I’m spike will our to growth I of last our consumptions. team’s would for respond in X share Hanson, do, I’m us and channel really at e-commerce the type encouraged and something ability quickly maintain a And to agree to Head that with. see to capture to

additional capability additional some There’s additional to like investment. build, do, some we’d some hiring

that’s example. So one

Another focus on obviously, and be, liquidity. would cash our continued

good We unit managing capital. working that, well. and sharp conversion continues to about business cycle operators sheet feel well, for that balance cash our Niko, focus our for be for know a me, You

and that That’s for to then, And think shopping preferences opportunity relates her pet consumer grow this understanding or it an consumer garden is to third his pandemic. is a our is evolving company how behavior in the orientation. still say I’d and something in and as I COVID

we’ve lot been a have if anything, on there’s that, So working sharper a focus.

of an in you, Peter, summer to still to last – view by be are I would that. out had I tell ambition more call And that we our share comprehensive a mentioned

more will We’re still date here, course Vision XXXX. back not to in review COVID. with due working be on on a hard robust ready but I’m you that we to given a providing commit

Peter Grom

it Thanks. pass very That Stay helpful. was I’ll on. safe.

Operator

Thank you.

with next line the Our question. Capital comes KeyBanc from Markets. Brad Please question of with your proceed Thomas

Bradley Thomas

be a going you business aspect my starts products good reopen, period different nature may Thanks maybe after business, had from as Tim, reflect Even the you how you and chance be taking just think the the about Hi, to potentially a to normal, question. and first thinking ahead of as how for here? discretionary facing ahead. think of about afternoon. just question elevated risk brands to be behavior My the consumer categories, stores the that around to your look to of risks on get the discretionary may unemployment. level some about back was the of we are at have of quarters that sales we

Tim Cofer

that would I think X to Overall, look industries at good question, they’re POS the a Brad. don’t and certainly that And say right that I in in Thanks, we was feel but are recession-resistant. POS at time transition we’re wouldn’t weekly spike place, we remains think I Garden shelter Sure. to as – of good earlier strong. Bill’s while there say I completely think pretty both you you that can recession-proof, Pet say in

and we’ve remains got, May. early April of the strong. seeing so through end of obviously, And of now And POS shipments consumption kind

that part, most call a know what super-premium would skew our the price. You portfolio to does for you not

pets. X at industries. think these starts It as I in the with shelters this I midterm remarks, pets probably have strength country, to all in and you California, read you’ve prepared over seen, underlying And look the about, from to mentioned running out York that themselves. Houston we New of favor drivers

coming That well at for seeing that. of needs record in, the we’re so bodes levels. corresponding adoptions And really,

that rings. of is like huge be grass at these Garden themselves are controls, home, to I plants. And going And shift to gardens. the a on going of I spending our their like improve categories like a ways think seed, dollar home, be more to aren’t to simple their for side, that, a consumers looking lend time with normal think improve live lot those

you very depth garden numbers But certainly we be in can see So and other projections again, to the the resilient, predict that even I think fairly see. versus certainly and of it, airlines, restaurants and difficult downturn. pet overall, a same unemployment industries,

XXXX, our part And we’ve periods. certainly as leadership and looked difficult I of – to during XXXX/XXXX. while I held team, back wasn’t pretty lessons I’ve here up Central in learned on overall from think the consumption well those XXXX And

Bradley Thomas

I around in very it, can Tim. That’s you’ll be Niko, for helpful, what on CapEx. ask a are If missed and the follow-up year? changes how I And apologize about if thinking here? CapEx but how I spending you any

Nicholas Lahanas

Yeah.

Year-to-date, So at guided CapEx $XX if million million. to to you for recall, year. we million $XX $XX the number about had we’re

are it all We stock be cash CapEx, expenditures, buybacks. reassessing

those be you going the sharpening know of initiatives. this around probably week environment, stuff, right looking of cash board at we’re All next some be because, pencils that now, king. as in our And with to is we’ll

all those bit give So on little update an of are a reassessing we’ll that, probably things. later we but

Bradley Thomas

you. you Thank Got so much.

Operator

Thank you.

Our line the Reuter question. proceed next Merrill comes America of Please with your Lynch. of William with question Bank from

William Reuter

the based doors this at upon garden they I sounds still closed? ones. or some channel have the lot garden do one the point, with, are reopened as retailers of softness their of as in like Meaning, a well those place? disruptions & retail & those larger of segment remain Good customers the lawn the or guess, smaller afternoon. I It lot a of guess, some lawn in disruption of was softness,

Tim Cofer

J.D.?

J.D. Walker

that. is I’ll This J.D. to Sure, speak

state are that had a Where smaller authorities board, of we’re reopen seeing lawn to & them centers, mind. period we’re come are again. back Michigan closed that some areas garden engage We that on the seeing we reopen, come had independent starting X off closed of and garden and some for local centers again. to time, Vermont had some and see those

again We’re increase increase starting retailers the starting positive store that to the people, see trends. store, all so customers number of they’re and allowing to in consumers, hours their

once retailers. to again, starting them the reengage, We’re see

So think bodes our I for well that business.

April. what short-term in part think saw March late that we I of was through headwinds

still as But encouragement. April, so Tim remained products. POS for our more seen in strong our we’ve gives here, great our historically products, recently demand And for said, us demand which strong strong

feel it. we So good very about

William Reuter

hear I meaningful mentioning I And about guess, how to Or performed. And you experiencing of when did operating of were you amounts your downtime? were certainly That’s kind good are team the so, any if really didn’t you anything strongly supply hear. you costs? how experience much? challenges, chain. elevated around had talking And

Tim Cofer

Yes.

there we’ve about have as as I very to said now, our fortunate sites percentage been of you report also We I’m remarks, that my positive. pleased that our distribution the if not tested manufacturing, employee small a offices, overall, cetera. of base in that include right only got XXX is across et one U.S. And is fully operational.

facilities or reopen. jurisdiction based X based the clean then these did, disruption in local order deep do a on time weeks, proactive close, measures our our given of on and either the of some temporary to a temporary course over We have COVID at

day. again, weren’t cetera, et say, supply centers, but But So, at feel overall every immune shape. we’re I across our certainly we look manufacturing, merchandising day We good. as new you good issues, a this in, chain, to would distribution is point,

And then, let’s see.

your was? The second part of question

William Reuter

Whether operating costs elevated, and then…

Tim Cofer

do costs in obviously, separation, we some at but value, plant stage, employees. fair to say this Yes, the cetera cost. of would gloves, incremental course PPE. distribution. marshaled masks, what et expect, of be And Exact And top there starts some that our chain not include include business, structure shielding on thank all well is to as on to Yes. quite This infrared in bit in some environment. you. the a normal manufacturing would I incremental temporary changes both our on as And it be of would to Obviously, say, comment would yes. supply a in you of have, to it as sanitizers, going one, PPE and bring greater higher of are we between facilities, this obviously with all of new these evolve thermometers as this

William Reuter

you and be you be. there of, this just can. will forward try where get couple cautious one that to weren’t move you some they equity, Do And I Or through just you That’s more hoped years you when which take potentially, one would had last all valuations ago environment? hoped think advantage a A M&A multiples in opportunities, may I with if expect that some from me. raised this Thanks. think lower environment? I

Tim Cofer

Well, it opportunities. the I on think depends

like fortress crisis. through everybody solid Our feel the balance sheet, is well a as balance the sheet. We knows, rock remains business performing

operations. our good feeling day-to-day about We’re very

I if think have and maybe up, at certainly the we dismiss came that there. something don’t it. So to think into lean I would right look opportunity We would

we looking at open at opportunity yeah, right time. be would So the to right the

William Reuter

Thank you.

Operator

you. Thank

next line Our comes your Monness, Crespi, with question. Jim Chartier and Please proceed of with from question Hardt. the

James Chartier

good some afternoon. questions taking Tim, about questions. wanted just the on the investment follow-up my spending. Thanks for to I Hi, of earlier

planned And of you a that this this spend then, second any there plan have much as people back – or in that are step manage in year then to any stores year? and is talked have And Niko, that, forward? measures expenses advertising, You quarter? done related and initiatives are for pulling How in about up any investment taking What to you the on place spending. with significant uncertainty? have Thanks. given just closed. your continuing related what’s although advertising the near-term to going Was

Tim Cofer

Niko build. Sure. over I’ll it to Jim, pass and start, to

highlighted areas, our And cetera. in of year year a QX some incremental e-commerce initiatives, investments. and of I of the in last select in marketing, guidance I additional part key innovation, this number in et of those at you initial building, back out did brand contemplate coming As personnel said, beginning digital in think

And for to do. absolutely investments, you in. the And the already in what have thing they’re we is pulled we because I’d bucket all that in cases, some in not today’s have day have Jim, back, the made tell we today is and decided we right those environment, is are And in cases, that others, third some reassessing. investment

taking very each approach initiatives. we’re of growth so to a and thoughtful And those measured

very hit, a John those say, detailed – I and the review I kind Niko, in with on line others, line among of of J.D. at by January Back and had by did would timeframe, the incremental And sat mixture. and Since the what a tell throughout year. balance it’s growth-oriented I’d you, plan reassessed a one. those gating of each investments a the have we COVID-XX one

blindly do what the to what go was environment. we going said in thought January not new given right We’re we just

measured So we’re a taking on and that. thoughtful approach

quickly answer to I’ll The the And one touch the Niko. on is and second yes. it pass absolutely, one to second

others. the business mentioned initiatives looking We I some at tightening tightening obviously, level builds call are offset corporate the unit and by we greater some business than business belt. what In of earlier the would both in of a those Niko, any a But level, headwinds. at to are they’re call. some I on BUs, at unit unit that? belt

Nicholas Lahanas

done a to XX% build need lot on we had of Yeah, Tim would like volume XX%. business just the at of to said, to out what extensive on if X%, companies, to X%, planning we take we’ve scenario declines what look had

place. in those have we So

Tim lesser business. seen what a really a businesses to extent, of seen, we’ve we’ve hit to plant few what was bedding live get hard live think in is alluding our our animal, to and I earlier,

So made very surgical. have been cuts They’ve we those already. in areas very,

But is right is as king a Cash think what cash. we’ve focused on now. really company, I

We’re doing the buyback reevaluating our mentioned program. earlier, things, CapEx, looking at as stock I

and looking particularly We’re channel. in credit independent really worthiness, at receivables the

healthy calls and actually, channel We’ve had is. a customers larger weekly number So how we reviewing that of, us want more to come have dating.

and very that. and and for costs and business all and the with then, cash the focused there. the at And I that, looking variable us cash fix also dealing of we’re think, key we’re really, preservation So conversion, is on

some the we’ve been so say Garden we’ve out, remained so other I good. thing far would is good. surgically the say but far, and because and areas, so downsized just And fortunate, both I we’ve POS would largely sides, on intact, both Pet But looks looking

the So continue on, forge on the really expense side. we’re going cash but to to micromanage

James Chartier

And another Great. then I ask if question. could

And of You research of stores Does the that maybe terms dog? in small was of animal in a mentioned small animals, tell adoption spike disruption a small being cat does what animals? wanting a then, rates. dog or lieu with And a cat your you that to closed? just consumers the in and adopt correlate

there? spoke in Thanks. increased of live seeing fish, on as fish competitors to one then, are And interest well. some you What the

Tim Cofer

take to want those you John, pets?

John Hanson

animal in the have well gotten so. some Sure. shipments Yeah, shoppers on And suspended is do suspended adoptions for as business. as The those demand place do past there, there’s pent-up live seen animal. we’ve fish majority that shipments and dogs we’ve sure. continue we’ve We will as our certainly to pet the in Tim mentioned, and small channel the for animal, seen seen prime believe and specialty cat a small

answer they pet forward, regain it’s hours, But Does to as continues to that But expect specialty business. fully right as traffic, that extend we a that going open, your question? hard predict now. little regain we’ll

James Chartier

helpful. Thanks best and that’s luck. Yes, of

Operator

you. Thank

of question with with Karru line Jefferies. proceed Martinson comes Please Our your from question. next the

Karru Martinson

Good afternoon.

With terms retailers there strong how of given seeing, retailers? bottlenecks have supply you’re to at instituted, And retail? are controls getting POS that that inventory the any in is the

Tim Cofer

different are would chain. supply demand. having big major – bottlenecks, we any don’t with or our shipments think and businesses. of at up we’re closer. X the businesses really consumption velocity have seeing our and some we’re that that on real level is across say we’re of keep We’ve or I cat present, the And And high side are POS say of like and I sales position both got that I in inventory that disconnects. to treats, flying, dog the fortunate little through is would kind the a Pet our consumer I’d in alignment at say the

on it But the good. overall, and correlates Pet well feeling side, pretty pretty

on of side. on a And POS inventory, you’d particularly a different want inventory On little comment on grass J.D. the in and Garden seed. garden Walker, the maybe it’s terms little to side,

J.D. Walker

aggregate, in Sure. our that I’d say shape. in great inventory’s

digits new Just items I includes shipped year-over-year year. increase it call that and would low-single that in this we

aggregate, as about expect, in in an we’re now in that. we good So is robust And feel like consumption, replenishment it right shipments environment great. would we so I following with think and looks

shape. and in perfectly we’re through. mentioned, say we some are I’d And grass line is that there particularly in mentioned, Tim varieties aggregate, seed, still. of have heavy as lumpiness where fine, inventory do overall, parts those working is we’re some there, grass of in the As but through retail, grass at But great working seed, and seed we’re I still

this And second to the not retailers. with having to follow. part that the POS, answer of of we’re And the shipments type any will issues, question, getting supply in

Karru Martinson

Good, to I’m this, of get great. think especially Pet smaller the is, health And at touched channels retailers terms, the base I but are you consumer shutdowns the seeing the then, just to any succumbing trying what on Garden. already in independent both for Bill and

Tim Cofer

guys and want businesses? quickly John, X J.D. to You comment, on your

J.D. Walker

Sure.

the complete question retailers. around of I was closure think the

literally that, not. seen may out to no. we X that, X may that. close some have them But we of chains single-store have haven’t there so We there don’t expect thousands – customers, closed seen and be temporarily. confirmation haven’t have seen We’ve we and and I that reopen they But or of

that. we of business through good about And the feel that with have we not X that large they’re so percentage our flowing confidence customers, anywhere, going still

John Hanson

well. reduction change seen very But open similar, pet hours up we’ve to Yeah and closures. pullback side, from that hours. some limited and and in would in we expect as the We’ve very seen

Karru Martinson

stand Okay. And does lastly, where quarter then since today thereabouts end? or just liquidity

Nicholas Lahanas

Yeah.

$XXX of drew million we the $XXX you so our cash about million of down we then cash include million when million the the ABL, have on on sheet, $XXX So X. of balance $XXX and roughly

Karru Martinson

much, very guys. Appreciate you thank right, it. All

Tim Cofer

So…

Operator

Thank you.

– As I a reminder, apologize. ladies

Tim Cofer

now? we are operator, the at hour Yeah,

Operator

We about are at the just hour.

Tim Cofer

Okay.

Operator

want Q&A if Let the the or call. close me you with out session continue to know

Tim Cofer

Yeah.

time more, operator. have for we one Okay,

Operator

Perfect.

Our of was with JP proceed last from Please the question Carla Morgan. line your question. with Casella

Carla Casella

squeezing for Hi, thank in. you me

comments to mentioned gross – can that you what but was end? say quarter that just most that that of drove And did the negative you the the mix you bit a margin. after Just shift trended categories, on then on there your and how shift quarter, how pressured mix talk a

Nicholas Lahanas

Sure. This is Niko.

at it start big we garden was that had to mix, to again, on If bit tend higher you a of the seed a side, little look be we season, grass a margin. the mentioned portion the of slow where,

higher the but dilutive it’s rid pottery which of The other not business, a was to it gross the margin, piece gross. great operating of getting a margin, had

pivot then, down high margin very business lot to were you And the of has retailers as live a Pet well. And mentioned, taking a animals. not the side, we orders our if gross of as live animal

the question? part So as far the our been as was second biggest relates POS, mix. that then the movers to as mix sort the of that’s it shift. And Was

Tim Cofer

Yeah.

Nicholas Lahanas

Yeah.

that timeframe. mean, a the seeing of look long I not as a I pickup. it’s So we’re at POS,

on the see I say we to lead mix have to So resume. the don’t false positive will those conclusions, are I animal to want orders still of very live anyone but POS. the yet on we side,

So been a slower. bit that’s little

we and the on The to And this peaks very plant consumers have out the that typically these weeks then ago. the see optimistic. if few to live we’re side, up then weekend. how season outdoor access area, weather next holds And have

in wait and going XX, data is to have we XX again, out And, but weeks about weeks. a see, So X come. have only POS quarter, our we’ll to so more

Carla Casella

much. Thank very great. That’s you helpful. Okay,

Nicholas Lahanas

you. Thank

Tim Cofer

We healthy. time. stay Thank for today. safe your everyone, and call appreciate our everyone you. And, want thank to I joining stay

Operator

This concludes today’s teleconference.

your disconnect participation your may lines and wonderful have day. a at for you Thank You this time.

Central Garden & Pet (CENT) 10 May 202020 Q2 Earnings call transcript