Lower sales along with increased promotional and innovation
costs took a toll on
Central Garden & Pet Company
) first quarter 2013 results as the company reported a loss of 32
cents per share, widening from the Zacks Consensus Estimate of a
loss of 28 cents a share. Moreover, reported loss increased 5
cents on a year-over-year basis.
Total sales for this Zacks Rank #5 (Strong Sell) company
decreased 3% year over year to $292.5 million, reflecting lower
sales across the Pet and Garden segment. However total sales came
marginally ahead of the Zacks Consensus Estimate of $292
Consolidated gross profit decreased 4.7% year over year to $77
million, while gross margin decreased approximately 40 basis
points to 26.3%. The company reported an operating loss of $13.1
million that widened from an operating loss of $11.3 million in
the prior-year quarter. The company stated that increased
promotional and innovation expenses and lower revenues from the
decor business negatively impacted the results.
segment net sales inched down 2% year over year to $195.2
million, reflecting sales decline in dog and cat products. The
segment's branded product sales decreased 1.5% to $154.2 million,
whereas sales of other manufacturers' products decreased 4% to
$41 million in the quarter. Pet segment's operating income
increased 5.2% year over year to $10.2 million, whereas operating
margin improved by 30 basis points, reflecting healthy
performance of the equine business.
sales declined 5% year over year to $97.3 million, reflecting
lower decor sales. The Garden segment's branded product sales
decreased 5.1% to $85.3 million, whereas sales of other
manufacturers' products decreased 7% to $12 million during the
quarter. The company typically generates lower sales in the
Garden segment during the first quarter. The segment
reported an operating loss of $8.5 million compared with a loss
of $11.1 million in the year-ago quarter.
Central Garden & Pet ended the quarter with cash and cash
equivalents of $12.6 million, total long-term debt of $450.8
million and shareholders' equity of $450 million, excluding
non-controlling interest of $239,000. The leverage ratio was 4.1x
for the quarter, marginally ahead of the target range of 2.5x to
The company did not buyback any shares during the quarter
under review. As of Dec 29, 2012, approximately $52 million still
remained at its disposal under its share repurchase
Central Garden & Pet earlier announced that it will focus
on streamlining its cost structure, increasing operating
efficiencies in order to improve its margins and will concentrate
more on revenue growth through product innovation and marketing
and brand-building initiatives. The company's long-term target is
to attain growth of at least 10% in the top line, and achieve
operating margins in the range of 10% to 15%.
Management also targets $40 million in cumulative cost savings
as it exits fiscal 2013. Central Garden & Pet intends to
lower its annual costs by $120 million by calendar year 2015 with
savings from supply-chain initiatives and SG&A.
The company intends to save costs on the warehouse and
distribution platform, and plans to combine garden and pet
products in the same warehouses wherever possible.
Another significant area of savings is the SKU
rationalization, and the company aims to lower its total SKU
count by at least 30% to 35% by the end of 2014. Central Garden
& Pet is consolidating its purchasing activities across the
whole organization as well as its sales initiatives by category
Other Stocks to Consider
Until any further upward revision in Central Garden &
Pet's rating, other stocks in the consumer goods and pet products
universe with a favorable Zacks Rank worth considering include
The Scotts Miracle-Gro Company
) all holding a Zacks Rank #2 (Buy), respectively.
CENTRAL GARDEN (CENT): Free Stock Analysis
JARDEN CORP (JAH): Free Stock Analysis Report
PETSMART INC (PETM): Free Stock Analysis
SCOTTS MIRCL-GR (SMG): Free Stock Analysis
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