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Central Garden & Pet (CENT) Down 11% in a Year: Here's Why
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Central Garden & Pet Company (CENT - Free Report) has not been performing well for a while now, due to several headwinds including a tough operating backdrop. Macroeconomic factors such as cost inflation, evolving consumer behavior and higher costs have been concerns.
Consequently, both the Garden and Pet segments of the company have been sluggish for a while. Shares of this producer and distributor of lawn and garden products, and pet supplier have lost 11% in the past year, wider than the industry’s 7.8% decline.
Let’s Delve Deeper
We note that the company has been witnessing sluggishness in its Garden segment for a while now. Gardening is generally limited to the period between spring to summer, which makes the garden business highly seasonal in nature. Failure to perform during the season is likely to have a significant impact on the company’s yearly financials.
The Garden segment’s net sales decreased 5% year over year to $434 million during second-quarter fiscal 2023. This was driven by lower sales in Grass Seed, Controls & Fertilizer and Live Goods, partly offset by strength in Wild Bird and Packet Seed. Unfavorable spring weather and changes in retailer buying patterns hurt net sales. This followed a decline of 6% in the preceding quarter.
The segment’s operating income came in at $50 million, down from $71 million reported in the prior-year quarter, while the operating margin contracted 400 basis points to 11.4%. Soft sales, input cost inflation and initial start-up costs associated with the recently acquired live goods facility hurt margins.
Image Source: Zacks Investment Research
Also, the Pet segment has been soft for a while now. The segment’s sales came in at $475 million, down 5% from the year-ago period. This followed a decline of an equivalent percentage in the preceding quarter. The metric declined due to the muted demand for durable pet products, the decision to discontinue certain low-profit private-label pet bed product lines and lower sales in Outdoor Cushions. The segment’s operating income came in at $55 million, down from $61 million reported in the prior-year quarter. Meanwhile, the operating margin shrunk 60 basis points to 11.6%. The decline was mainly driven by lower sales.
Central Garden & Pet has been witnessing weak margins, and higher selling, general and administrative (SG&A) costs. During the second quarter of fiscal 2023, gross profit decreased 9.5% to $259.6 million. Also, the gross margin shrunk 150 basis points to 28.6%, following a contraction of 260 basis points in the preceding quarter. The decline was driven by the Garden segment due to unfavorable overhead absorption in key garden businesses and input cost pressures. As a percentage of net sales, SG&A expenses increased 110 basis points to 20%. As a result, the operating margin shriveled 260 basis points to 8.6%.
Central Garden & Pet operates in highly-competitive markets and hence faces intense competition from regional and national firms on grounds of price, product quality, number of products offered, brand awareness and customer service.
All the aforesaid negatives make Central Garden & Pet a current Zacks Rank #4 (Sell) company. A VGM Score of F further adds to the weakness. For fiscal 2023, the Zacks Consensus Estimate for Central Garden & Pet’s sales and earnings per share (EPS) is currently pegged at $3.31 billion and $2.35, respectively. These estimates show corresponding declines of 0.9% and 16.1% from the year-ago period’s figures.
In a nutshell, we remain cautious about the stock in the near term given its weaknesses.
RCL has a trailing four-quarter earnings surprise of 26.4%, on average.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 48.7% and 162.9%, respectively, from the year-ago period’s reported levels.
Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 15%.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and EPS suggests growth of 13.1% and 5.6% from the year-ago period’s reported figure. CROX has a trailing four-quarter earnings surprise of 19.6%, on average.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 17% and 18.4%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
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Central Garden & Pet (CENT) Down 11% in a Year: Here's Why
Central Garden & Pet Company (CENT - Free Report) has not been performing well for a while now, due to several headwinds including a tough operating backdrop. Macroeconomic factors such as cost inflation, evolving consumer behavior and higher costs have been concerns.
Consequently, both the Garden and Pet segments of the company have been sluggish for a while. Shares of this producer and distributor of lawn and garden products, and pet supplier have lost 11% in the past year, wider than the industry’s 7.8% decline.
Let’s Delve Deeper
We note that the company has been witnessing sluggishness in its Garden segment for a while now. Gardening is generally limited to the period between spring to summer, which makes the garden business highly seasonal in nature. Failure to perform during the season is likely to have a significant impact on the company’s yearly financials.
The Garden segment’s net sales decreased 5% year over year to $434 million during second-quarter fiscal 2023. This was driven by lower sales in Grass Seed, Controls & Fertilizer and Live Goods, partly offset by strength in Wild Bird and Packet Seed. Unfavorable spring weather and changes in retailer buying patterns hurt net sales. This followed a decline of 6% in the preceding quarter.
The segment’s operating income came in at $50 million, down from $71 million reported in the prior-year quarter, while the operating margin contracted 400 basis points to 11.4%. Soft sales, input cost inflation and initial start-up costs associated with the recently acquired live goods facility hurt margins.
Image Source: Zacks Investment Research
Also, the Pet segment has been soft for a while now. The segment’s sales came in at $475 million, down 5% from the year-ago period. This followed a decline of an equivalent percentage in the preceding quarter. The metric declined due to the muted demand for durable pet products, the decision to discontinue certain low-profit private-label pet bed product lines and lower sales in Outdoor Cushions. The segment’s operating income came in at $55 million, down from $61 million reported in the prior-year quarter. Meanwhile, the operating margin shrunk 60 basis points to 11.6%. The decline was mainly driven by lower sales.
Central Garden & Pet has been witnessing weak margins, and higher selling, general and administrative (SG&A) costs. During the second quarter of fiscal 2023, gross profit decreased 9.5% to $259.6 million. Also, the gross margin shrunk 150 basis points to 28.6%, following a contraction of 260 basis points in the preceding quarter. The decline was driven by the Garden segment due to unfavorable overhead absorption in key garden businesses and input cost pressures. As a percentage of net sales, SG&A expenses increased 110 basis points to 20%. As a result, the operating margin shriveled 260 basis points to 8.6%.
Central Garden & Pet operates in highly-competitive markets and hence faces intense competition from regional and national firms on grounds of price, product quality, number of products offered, brand awareness and customer service.
All the aforesaid negatives make Central Garden & Pet a current Zacks Rank #4 (Sell) company. A VGM Score of F further adds to the weakness. For fiscal 2023, the Zacks Consensus Estimate for Central Garden & Pet’s sales and earnings per share (EPS) is currently pegged at $3.31 billion and $2.35, respectively. These estimates show corresponding declines of 0.9% and 16.1% from the year-ago period’s figures.
In a nutshell, we remain cautious about the stock in the near term given its weaknesses.
Eye These Solid Picks
Some better-ranked companies are Royal Caribbean (RCL - Free Report) , Crocs (CROX - Free Report) and lululemon athletica (LULU - Free Report) .
Royal Caribbean sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
RCL has a trailing four-quarter earnings surprise of 26.4%, on average.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 48.7% and 162.9%, respectively, from the year-ago period’s reported levels.
Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 15%.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and EPS suggests growth of 13.1% and 5.6% from the year-ago period’s reported figure. CROX has a trailing four-quarter earnings surprise of 19.6%, on average.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 17% and 18.4%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.