Pet company Central Garden & Pet (NASDAQ: CENT) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 3.6% year on year to $960.9 million. Its non-GAAP profit of $1.56 per share was 9.3% above analysts’ consensus estimates.

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StockStory’s Take

Central Garden & Pet’s second quarter was marked by a significant negative market reaction following a revenue decline and a miss versus Wall Street’s expectations. Management identified extended cool and rainy weather, the loss of two product lines in its third-party garden distribution, and ongoing efforts to rationalize pet durable products as primary causes for the top-line weakness. CEO Nicholas Lahanas acknowledged that while operational improvements drove record earnings per share and margin expansion, the company faced a “complex and fluid macroeconomic environment” that pressured both consumer demand and retailer activity. Segment leaders highlighted that category softness in pet durables and intentional exits from lower-margin businesses drove most of the revenue decline, with stable performance in higher-margin consumables partially offsetting these headwinds.

Looking ahead, Central Garden & Pet’s guidance hinges on further execution of its Cost and Simplicity program, ongoing portfolio optimization, and selective investments in e-commerce and product innovation. Management reaffirmed its full-year non-GAAP EPS outlook, despite caution around intensifying tariff pressures and ongoing promotional activity in retail channels. CFO Brad Smith noted that most tariff impacts will be felt in the next quarter, but cost savings from sourcing changes and SKU rationalization are expected to provide partial mitigation. CEO Nicholas Lahanas emphasized, “We remain focused on disciplined cost and cash management, while making targeted investments to drive organic growth, especially in e-commerce, digital technology, and innovation,” underscoring a cautious but constructive approach for the remainder of the year.

Key Insights from Management’s Remarks

Management attributed Q2 performance to deliberate portfolio streamlining, weather-driven garden weakness, and margin gains from operational efficiencies. The forward outlook is shaped by tariff concerns and continued cost initiatives.

• Strategic portfolio exits: The company intentionally exited lower-margin product lines in both the Pet and Garden segments, with most revenue decline attributed to these moves. Management stated that the durable pet products category saw double-digit declines, primarily due to assortment rationalization and soft demand, while consumables remained stable and grew as a share of total sales.

• Margin expansion through cost programs: The ongoing Cost and Simplicity program delivered measurable impact, with management highlighting consolidation of outdated distribution centers into modern, direct-to-consumer enabled hubs. These initiatives led to improved gross and operating margins, despite top-line pressures.

• Weather dampened garden results: Extended periods of cool and rainy weather negatively affected the garden season, particularly in seasonal categories like controls and live plants. Despite these challenges, management noted strong performance in Wild Bird, Fertilizer, and Packet Seeds, with e-commerce channels achieving double-digit growth.

• Shift toward higher-margin consumables: The Pet segment's product mix continued to shift toward consumables, which now represent 82% of segment sales. Management cited this as a key driver of resilience and margin improvement, as consumables are considered more stable and profitable than durables.

• Operational optimization and facility upgrades: The sale of U.K. aquatics brands and the transition of U.S. pet brands to a direct export model, along with the consolidation of 20 locations into five efficient hubs, were highlighted as milestones in simplifying operations and reducing costs. Management expects continued benefits from these actions in coming quarters.

Drivers of Future Performance

Central’s forward outlook centers on continued cost optimization, navigating tariff-related headwinds, and investments in product innovation and e-commerce expansion.

• Tariff impact and mitigation: Management anticipates increased inflationary pressure from tariffs, particularly in the Pet segment, with most of the financial impact expected in the next quarter. Efforts to mitigate include sourcing diversification, reducing China exposure, and SKU rationalization. CFO Brad Smith noted that pricing actions may be required, but most benefits from sourcing changes will accrue next year.

• Continued portfolio optimization: The company plans to further streamline its product portfolio, focusing on higher-margin consumables while exiting less profitable and operationally complex categories. This ongoing rationalization is expected to support both margin improvement and operational efficiency, though it may result in continued top-line headwinds in the near term.

• Targeted investments and M&A: Management is prioritizing investments in e-commerce capabilities, digital technology, and new product development, with recent launches in pet nutrition and wellness cited as promising. While M&A activity in core categories remains subdued, Central expects to accelerate acquisition efforts next year as market conditions improve.

Catalysts in Upcoming Quarters

Looking ahead, our team will be monitoring (1) the realization of cost savings and margin gains from facility consolidations and portfolio optimization, (2) the effectiveness of pricing and sourcing strategies in offsetting tariff pressures, and (3) the pace of e-commerce and digital investments. We will also keep an eye on weather patterns affecting garden sales and signs of renewed M&A activity as Central seeks to complement organic growth with targeted acquisitions.

Central Garden & Pet currently trades at $33.68, down from $39.42 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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