Central Garden & Pet Company Price & Performance (CENT)

Good afternoon, everyone, and thank you for joining Central's Central quarter fiscal twenty twenty five earnings call. Joining me today are Nicole Lahanas, Chief Executive Officer Brad Smith, Chief Financial Officer John Hansen, President of Pet Consumer Products and JD Walker, President of Garden Consumer Products. In a moment, Nico will share today's key takeaways followed by Brad, who will discuss these in more detail. After their prepared remarks, JD and John will join us for our Q and A session. Before we begin, I would like to remind everyone that our forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward looking statements express or implied today. A detailed description of Central's risk factors can be found in our Central report filed with the SEC. Please note that Central undertakes no obligation to publicly update forward looking statements to reflect new information, future events or other developments. Our press release and related materials, including a GAAP reconciliation for the non GAAP measures discussed on this call, are available on IR central.com Central. Lastly, unless otherwise specified, all growth comparisons discussed during this call are made against the same period in the prior year.

If you have any further questions after the call any point during the quarter, please feel free to reach out to me directly. And with that, let's begin. [indiscernible] Thank you, Frederic.

And good afternoon, everyone. Thank you for taking the time to join us today.

I'd like to begin by highlighting the three key takeaways from this call. First, a strong start to the fiscal year. Thanks to excellent execution by TeamCentral Central. Second, steady progress in simplifying our business and driving efficiency through footprint rationalization portfolio optimization and cost structure improvements And third, confidence in our outlook for the year. Now let me expand on these points. First quarter achievements. We delivered a solid performance in the first quarter with growth in both earnings per share and net sales. This was driven by timing of shipments across pet and garden categories and channels, Supported by favorable weather conditions, for the Garden business, and timing of promotional activities in our Pet business. [indiscernible] Most notably, margins improved due to disciplined cost management and easing inflationary pressures. We're particularly encouraged by the robust continued growth in e commerce which reflects our enhanced digital capabilities, These achievements are a testament to the dedication and hard work of TeamCentral Central. Their grit and unwavering commitment drive our success.

And because of them, we're building an even stronger future. Second, cost and simplicity program. Our cost and simplicity program drives meaningful results. Initiatives implemented in prior periods are yielding tangible benefits. And we continue to roll out new projects.

Highlights for the first quarter distribution optimization, Our new distribution center in Covington, Georgia has now been operational for over one hundred days. This facility replaced seven legacy facilities significantly reducing our distribution footprint while increasing efficiency. Safety and productivity enhancements Across all BUs, we've implemented measures to improve safety, particularly within our merchandising teams. These efforts have boosted productivity and overall output. E commerce expansion. We recently expanded our e commerce operations [indiscernible] This new facility strengthens our ability to manage and fulfill our own direct to consumer business as well as drop shipments for retail partners more effectively. These initiatives are part of our broader strategy to make Central leaner, more agile and more efficient positioning us for margin expansion while freeing up resources to support organic growth strategic M and A and our commitment to social responsibility and environmental stewardship. On that note, we're proud to share some of our business units and teams have collaborated to support several animal welfare organizations assisting communities impacted by the wildfires, the Los Angeles area Our contributions include essential pet supplies, such as dog beds, training pads, food and toys along with a cash donation to LA County Animal Care and Control and Best Friends Animal Society.

Third, our outlook for the fiscal year. We're confident in our strategy. Our team, and the deliberate actions we're taking to drive sustainable and profitable growth in fiscal twenty twenty five and beyond. As such, we're reaffirming our fiscal twenty twenty five guidance for non GAAP EPS of $2.2 or higher. Maintaining our focus on delivering long term value. Looking ahead, we'll continue to exercise disciplined cost and cash management strategically investing in critical capabilities particularly in e commerce, digital and innovation. Our strategic M and A efforts remain focused on enhancing growth priorities expanding capabilities and strengthening our portfolio. That said, we recognize the complexity of the external environment which includes macroeconomic and geopolitical uncertainties such as potential tariffs, Additionally, we expect ongoing consumer pressure a competitive marketplace driven by promotions and challenges the brick and mortar retail sector. In the Garden business, we anticipate continued volatility from extreme weather patterns as a potential new normal With the 2025 garden season still ahead of us, we're cautious not to over interpret first quarter results.

Especially given the significant benefit from the favorable timing of shipments. As retailers work through existing inventories, we anticipate a softer second quarter than last year. With that, I'll turn it over to Brad.

Brad? Thank you, Nico. Good afternoon, everyone. Building on Nico's key takeaways, I'll provide an overview of our first quarter results and and our outlook for the fiscal year. Let's start with our first quarter results. Net sales increased 3% to $656,000,000 driven primarily by timing of shipments supported by favorable weather on the Garden side and timing of promotional activity on the Pet [indiscernible] Consolidated gross profit for the quarter grew 196,000,000 up from $179,000,000 a year ago, And gross margin improved by 160 basis points to 29.8% driven by productivity gains and moderating inflation. SG and A expense of $168,000,000 was 2% below the prior year. And SG and A as a percentage of sales decreased by 140 basis points to 25.5% reflecting continued cost discipline across our businesses. Operating income was $28,000,000 compared to $8,000,000 in the prior year quarter, and operating margin improved by 300 basis points to 4.3% Below the line, net interest expense was $8,000,000 compared to $2,000,000 in the prior year. Driven by higher interest income as a result of larger cash balances Other expense was $2,000,000 compared to other income of $1,000,000 a year ago. Net income was $14,000,000 compared to 430,000 and earnings per share came in at $0.21 compared to $0.01 a year ago.

Adjusted EBITDA for the quarter was $55,000,000 compared to $37,000,000 and our tax rate for the quarter 23.5%.

Now I'll provide highlights from our two segments, starting with Pet. Pet net sales increased 4% to $47,000,000 with growth primarily in dog and cat more than offsetting lower sales in aquatics driven by our decision to exit low margin SKUs. Consumables sales grew mid single digits while durable sales saw a single digits decline in encouraging improvement compared to the double digit declines of the past five quarters.

Although consumable shipments were strong during Overall, we held market share with gains in e commerce successfully offsetting declines in brick and mortar channels E commerce now accounts for 28% of net of pet sales net sales growing 6% over prior year. This growth was driven by the addition of new products, and further improvements in conversion rates, which contributed to share growth across [indiscernible] multiple categories online. Operating income for Pet was $51,000,000 up from $43,000,000 in the prior year. Operating margin improved by 140 basis points to 12% driven by productivity gains resulting from our cost and simplicity program and moderating inflation. As a result, Pet segment adjusted EBITDA increased to $61,000,000 compared to $54,000,000 a year ago.

Moving to Garden. Garden net sales were $229,000,000 a 2% increase from a year ago.

This growth was driven by strong performance in Wild Bird and Central and Fertilizer, which more than compensated for lower sales in our distribution business, Overall, shipments for the quarter exceeded POS reflecting large initial early season shipments for store sets during the month of December. Garden e commerce sales, while less developed than Pet, had another record growing double digits across pure play and omni channel retailers, thanks to new items, optimized content and centralized retail media efforts that boosted engagement, and conversion rates across accounts and business units, Operating income for Guardant was $2,000,000 compared to $9,000,000 operating loss in the prior year quarter, Operating margin came in at 1.1% compared to a negative 3.9% a year ago, driven by moderating inflation and productivity gains. Finally, Garden segment adjusted EBITDA was $14,000,000 compared to $2,000,000 in the prior year quarter As Nico mentioned, Q1 is typically our smallest quarter. Particularly for the Garden segment where the 2025 season is still ahead of us. While we're pleased with the strong performance in the first quarter, it would be premature to draw conclusions for the full year. Let me now address the balance sheet and cash flows Cash used by operations was $69,000,000 for the quarter versus $70,000,000 in the prior year quarter.

Our ongoing focus on working capital management led to further inventory reductions this quarter compared to the prior year across both the Pet and Garden segments, CapEx for the quarter was $6,000,000 which was less than the prior year. Depreciation and amortization for the quarter was $22,000,000 also slightly below the prior year. During the quarter, we repurchased approximately 1,000,000 shares or $54,000,000 of our stock As of quarter end, dollars 131,000,000 remains available under the share repurchase programs with additional shares authorized under the equity dilution plan. Total debt of $1,200,000,000 was in line with the prior year We ended the quarter with a gross leverage ratio of 2.9 times compared to three times a year ago below our target range of three to 3.5 times We had no borrowings under our $750,000,000 credit Cash and cash equivalents at the end of the first compared to $341,000,000 in the prior year an increase of $277,000,000 after our usual Q1 working capital build. Given our strong financial position, we remain actively focused on high growth consumable companies with accretive margins Our goal is to build scale in core categories strategically in our adjacent categories and enhance key capabilities to drive long term growth and value creation.

Turning to our fiscal twenty twenty five outlook. As Nico mentioned, our guidance remains unchanged from November.

Given our first quarter performance benefited from favorable timing of shipments and promotion activities, we expect a softer second quarter compared to last year. However, we remain confident in achieving non GAAP EPS of $2.2 or better for the fiscal year. This outlook underscores our confidence in the strength of our strategy and action plans and in the resilience of our team as we navigate near term macro economic geopolitical, and weather uncertainties $70,000,000 this fiscal year. These investments will be focused on productivity enhancing initiatives and essential maintenance across both our segments, Our fiscal year outlook assumes the currently proposed tariffs but excludes potential impacts from acquisitions divestitures or restructuring activities including initiatives under the cost and simplicity program that may arise during fiscal twenty twenty five We would now like to open the line for questions. Thank you. We will now be conducting a question and answer session. This And our first question comes from Bill Chappell with Truist Securities. Good afternoon. Hey, Belk.

Niko, I don't really know, am I supposed to say congratulations on the quarter or was this all a pull forward and so everything is just exactly as you expected? I wouldn't say it was exactly how we expected otherwise. We would have guided you a little better. Yes, we had some timing. I wouldn't call it pull forward. I think it was more of timing of shipments We had some businesses that just loaded in a little bit earlier than prior year. I would say, but it's a combination as well, right? It's we had some favorable mix good weather, a little bit of timing and some great execution. So all of it kind of came together. I think you'll see some of that come out of Q2. As we stated in the prepared remarks.

And I guess we're trying to understand how much of that I mean is that majority of said and also with that kind of a bigger question, I understand the timing of shipments on Garden just and usually that's a bullish sign that the retailers are getting ready earlier for the season. But I don't remember seeing the timing of shipments on pet changed that much. So maybe you could help us there.

Yes. So we do have seasonal pet businesses, one of which is our cushion business, Ardent. And that loaded in a little bit earlier as well. That's also obviously outdoor cushion, so very much a springtime type business. And we had some earlier orders. So pet few of the Pet businesses got pulled along as well. I don't know, John, do you have anything to add?

Yes. And then we had some promotional activity early Q2 that got pulled into Q1. Honestly, we just hadn't planned for.

Yes. I mean, on the this is Brad. I mean, the timing of when the customer needs shipments to go out to plan for those promotions [indiscernible] we were expecting more of the shipments to hit in Q2, that actually ended up hitting sooner in Q1. But this was all normal year over year activity in terms of there were no big new promotions. It was fairly consistent with the prior year and there was certainly we just underscored there was not a situation where we were intentionally trying to pull forward? No, not at all. And [indiscernible] even the seasonal businesses that pulled forward honestly, we view that as a good thing. Because customers are excited about the season. They want to take the inventory early which is a good thing. Got it. And then somewhat surprisingly, you said in the release that you have accounted for some tariff activity in your guidance Maybe you can give us some more color on what you've accounted and where you might expect to see issues Yes. So I mean, we've been obviously like every [indiscernible] where things are heading with tariffs. Obviously, this week has been quite a wild ride to say the least.

But we've [indiscernible] the 10% tariff on China as well as 25% on Canada and Mexico and we were able to get comfortable that given our exposure and the timing of when that would hit some of the mitigation strategies we've got in place that we'd be able to tackle the Doritosin still based on everything we see in front of us stay within our guide. Great. Thanks so much. Thank you.

Thank you. And our next question comes from Brad Thomas with KeyBanc Capital Markets.

Hi, thanks for taking my question.

Niko, I was hoping to follow-up just on that topic of some of the policy changes and was wondering if you could talk about your opinion on the de minimis exemption and it potentially being closed or substantially reduced. And just just how much impact you think that may be having on your pet category right now, for example? Yes. I'll kick it off and I'll let John fill in. He knows a hell of a lot more than I do about it. But We're very pleased [indiscernible] decided to address the issue We'll have to see how it plays out I think it's going to probably affect the durable category the most. Going forward, but I think we still have to see how that plays out. I think if you dig a little bit deeper, we'd still love to see live animal and petit off increase. And I think with that, you'll see the durables pick up. But certainly, it should level the playing field. Yes. Just to build on that a little bit, we've seen durable to declines in Q1. I think there were low double digits Sequentially, improvement versus prior quarters. So think around that 12% range for the category It's really difficult for us to say, hey, how much of that is soft pet ownership or soft pet acquisition, versus what is coming out of of Asia via ecom and low price goods.

We know it's having an impact no doubt about it, because you can just go on the web page and you can look and see what they're offering and the prices they're offering. So we think it's a really good thing going forward. And we're just going to have to wait and see how that impacts the back half.

I appreciate it. And if I could follow-up on the live goods category. I know that better weather is a really big opportunity for you all, fingers crossed here for the spring. But just as you think about retail doors that you're in and placements, Any color you could share on just, what the underlying business would look like on kind of a like for like basis if weather doesn't change? Are you up or down as we think about LiveGoods? How should we think about that?

Great question, Brad. This is JD. I'll take that.

So first of all, Regarding live goods, obviously, they had a material impact on our performance last year. [indiscernible] turned in a very solid quarter in Q1. I'm proud of the business unit. I think they delivered on their financial commitments and it reflects a lot of the good work that they've done in getting this the business a better business model and overall better business performance. So they've rightsized SG and A, rationalized the product offering and that includes exiting some unprofitable geographies or unprofitable SKUs. Have optimized facilities, at least started that process so getting the footprint right. [indiscernible] Obviously, that's Q1 and this is this business or the season is still in front of us. It's mainly a Q3 season.

We really like the operating cadence and the rhythm that they're in right now And if weather cooperates, if Mother Nature does her role here, I think that this business turns in a much better business performance year over year. We feel much better about it. It. That's great.

Maybe if I could squeeze the last one in just on the new distribution facility that you have. Can you help us think about the capacity facility and perhaps how it might fit into acquisitions and growth going forward here?

Yes. I mean, it's it's a large, what I would call, more state of the art facility than what we had before and we've taken roughly seven other facilities and folded them in there. It's got high ceilings, more doors than we've ever had before. And some room to grow. Largely right now, you can think of this as a garden [indiscernible] in there, but we had our entire pet segment come and tour the facility. I think we're very close to seeing us begin to distribute product both pet and garden products out of one facility. We continue to really shrink the footprint of of the business in total, not just garden or pet, but really thinking through mixing centers and what that looks like across the country. And consolidating becoming more efficient. And I think it just allows us to be more agile particularly on the Garden side, where we're dealing with more just in time, this allows us to stage shipments better and just be a more agile, fast moving org going forward. So we're pretty excited about it. Very helpful. Thanks, Niko.

Thank you. And our next question comes from Jim Chardy with Manes, Crespi and Hard Please proceed with your question.

Hi, thanks for taking my questions.

On the tariffs, can you just remind us what percentage of your product is sourced from China, Mexico and Canada? Yes. We've got about I think 4% of it that is coming from China. Canada and Mexico are in combination about 2%.

Roughly And then we've got another 8% roughly of our input that are coming from other countries.

So it's total like 15% of cost to goods? It's 14%, 15% that's coming from abroad.

Got it. Thank you.

And then could you just give us a little more color on kind of what a softer 2Q means sales down, EPS down year over year and then if EPS is is down like given the margin performance in first quarter why would we think that the operating margin would be down year over year in second quarter?

Well, the margin may not be down. What I would just say is so first of all, I want to get away from guiding every quarter, because as we've said in the past, we're going to be wrong a lot So I would just say directionally, it's not going to be what last Q2 was. If you remember, last Q2 was pretty strong. And we'll probably be below last last year's Q2 EPS. With the timing of the shipments, We'll look at the top line could be down low single digits. Into the quarter. But beyond that, product mix is going to play a big role We have every intention of expanding margin and really having a great quarter in Q2 and then weather is going to play a role there as well. So that's sort of when the garden season starts to really kick off. And then we want to see what POS does. Early on in Q2.

Great. Thank you.

Thank you. And our next question comes from Bob Labick with CJS Securities. Proceed with your question.

Good afternoon. Thanks for taking our question.

I wanted to stick with the pet derma side. You've talked about it a little bit. Maybe we can just stick down a little further. The hardgood sales, obviously, there was an impact from the pandemic and pet ownership and you've talked about some potential competition. What's the line of sight for recovery? Is there innovation you can introduce that can drive sales? Or How do you see this getting back to flat to growth over time? Or is that [indiscernible] Well, certainly, I'd kick it off by saying we believe in these categories We believe low to mid single digit growth in these categories And if you think about COVID, it was a huge pull forward in live animals. Right. We're still working through that. There is no doubt about it. And we see that in all the pet ownership and new pet acquisition numbers that that we get.

There's categories like small animal, which include rabbits and guinea pigs that we're still seeing declines. So we got to work through that. Durables often go with the live Central. Because when you buy the live animal, you buy an enclosure, you buy feeding, watering, filtration, if you're in aquatics, So we got to work through it. I don't have a crystal ball to say, hey, when that's going to recover, But I do see durables sequentially that are And then we had this wildcard thrown at us with e commerce direct imports coming in from Asia.

And those goods were cheap. Really, really cheap and they got around that [indiscernible] And that's been closed. So I do think that is going to have an impact as we go forward. And then certainly as live animals pick back up, which it will, history says it will and I believe it will and we all believe it will, You're going to see durables recover as well. And we are innovating with Durables where it makes sense. [indiscernible] you think of sort of the razor razor blade type of concept with our fish tanks, We've got the Blue iQ app that goes along with that. We've got some proprietary filtration that you have the cartridges, which is the consumable but they only fit our our filtration system. So we're doing some good innovation there. We're not just walking away from durables because they are important. And again, we try to be smart about how we go into the categories with respect to the durables. And try to take really the viewpoint of more of a razor razor blade type mentality there. Where we can.

Okay, great. Appreciate that. And speaking of the Cristobal, you obviously have a very strong balance sheet. And so I was just curious if you could give us you'd like to make as you said, accretive acquisitions, margin growth, etcetera. What's the M and A environment like out there now given all of the macroeconomic events and everything else? Not going to ask you if you're going to do something this year, but how has the environment changed? How does your pipeline? How do things look from an M and A perspective?

Yes. I mean, we we were in discussions with a few deals We currently still sort of are, but it's it's been more kind of anticipatory right now. I think everyone's waiting for the deal flow really to kick off and and get going. There's been a lot of discussions with bankers. I think the activity level is up. We just haven't seen a ton of deals come across our desk as of yet. But I certainly think that there's a lot of anticipation in the market. I think Sellers are starting to take a hard look. We're hearing from banks and others that pipelines are being formed. We just haven't seen it yet it feels like it's starting to come together and hopefully we'll have more to [indiscernible] As the year progresses.

Thank you. And our next question comes from Brian McNamara Canaccord Genuity. Please proceed with your question.

Hey, good afternoon guys. I guess this one's for Nikko. If I'm an investor looking at the stock, you guys have had a lot of stuff go wrong or I guess out of your control over the last few years. You have You've had weather, you've had pet ownership, you've had the durables issue. What would you say to investors kind of kicking the tires on the stock for the first time? It sounds like things are starting to get a little bit better here, but I don't want to put words in your mouth.

Yes. I mean, I would I would say that that's exactly right. We have had a few rough weather years had the big pull forward, as John mentioned, via COVID on I would say if you look at the business, the teams here have done an incredible job of executing both through the pandemic and post pandemic. So if you look at our margin profile compared to a lot of the other consumer companies out there, we've done a really good job. And I think our balance sheet reflects that. If you look at our cash position, that's really a sign of great execution around working cap profitability, things like that. I would say right now, we're in a bit of a cycle, but But to your point and if you look at the numbers, it feels like we're we're starting to come out of that. We feel very good about the business. We love our categories. And I would say we have a very strong management team that's incredibly focused on the future. So really love the organic business and then a strong balance sheet to go after some accretive M and A. To me, that's pretty exciting.

Great.

Thank you.

Thank you. And our next question comes from Andrea Teixeira JPMorgan. Please proceed with your question.

Thank you. Good afternoon. I hope you're all well. I have a question and two clarifications, please. One is on the cost and simplicity program. Understand you don't provide outlook on that program, but your margin expansion was notable in the quarter. Obviously, you had some operating leverage with the With the shipments being earlier, but what was the negative we just say of the savings in Q1 And how much more do you anticipate in savings for the remainder of the fiscal And the two follow ups, One is that what is actually doing better than expected that offset the impact of the tariffs? Or are you planning to take pricing against the impact in leading to a neutral model line? And second, on the up side for the Q1 quarter, we just say that there was about I think if my math is correct, it's about $20,000,000 that was the beat against our estimates and consensus. That should probably come out from Q2 just as a cadence it's important to model. Thank you very much for all of those.

Yes.

I would say, you're right on the cost and simplicity of big part of our margin expansion was due to us. Can Andrea, we're not going to guide on the year and how much we're going to take out because again, just like us guiding the quarter, we're going to be wrong And so we're going to instead tell folks about it and you're going to see it in the margins as we go forward. And we're going to continue to really optimize the footprint and and the business. In terms of tariffs, I would say that pricing is going to be very difficult to go into retailers and try to take price. I think that's going to be a real challenge So really the onus is going to be on us to either work with the suppliers out there to to see about some cost cutting. We have our own efforts here where we're taking cost out in our cost and simplicity program. So we have a way to expand margin that way. Taking price, we guided, I think, back in November, we said we're going to be net negative on the year. In pricing by about $14,000,000 And I think we were net negative in this So really, it's it's being made up on volume and cost savings and and just really good execution.

And I think that's going to have to continue forward. I just I really don't see us going in a ton of prices here. And I would just echo that. I think working with our suppliers to minimize is a high priority for us. We've looked and continue to look at country of origin. For our suppliers. But as Nikko said, pricing is going to be very difficult to take.

And on the upside for the quarter, just like thinking $20,000,000 is a good number. As Bill was starting on the call, I asked asking like it's not a pull forward, but obviously it has been the calendar. I understand like Easter Easter is actually going to fall in your third quarter from what I a lot of companies are starting to talk about it because of the calendar shift. Not sure if that's for the seeds for the gardening side will make any impact because folks will be more I'm assuming there's more consumption occasions if they are not a holiday. I mean, is there anything that impacts maybe the gardening is going to be Okay. We're going to continue the same pace?

Yes. I think weather will be a bigger component to Q2 and Q3 than where Easter falls. I think You're right. It will probably affect Garden more than anything and probably live goods. But I would say, getting back to your question the top line, I think conservatively, You could take that out of Q2, even though we really don't want to get into the habit of guiding the quarters And then last but not least, the weather will play a role in Q2 and also our POS, the performance as the quarter goes. So things could change. As that quarter progresses.

Yes. Niko, just building off that.

It is favorable to us when we have an earlier Easter. So last year Easter was at the end of Q2. In late March. That's more preferable than the April like it is this year. But having said that, Niko is right, weather far outweighs the impact of having a later Easter. We are getting into peak season in that time though, late April, early May will be peak season for us.

And then that's super helpful. And then just as obviously the disaster of like the fires, Is there any anything we should be cognizant of? Of course, like the human impact is and obviously the patch impact. I appreciate that you donated a fair amount as you put it in the prepared remarks. But anything we should be aware of? In terms of the impacts here?

Yes, we can't really think of anything other than a lot of unfortunate people were displaced. But we're doing everything we can to try to try to help folks down in Southern California. Okay. Fair enough. Thank you very much, El Paso.

And our next question comes from William Reuter with Bank of America. Please proceed. Hi, guys. Good afternoon. This is Robert, Beyond for Bill. So first question from us. Appreciate the commentary around M and A. But moving forward, given the large cash balance that you do have, I guess, absent M and A, what where are you expecting any uses of cash to be? Or should we expect a similar level or similar cadence of share repurchases moving forward?

It'll so the way we look at the share repurchase, well, first of all, I would say we still want to invest the business. So that's always going to happen. We have a big balance and when you have a balance that size really the first place you're going to look is M and A. Secondly, is really internally around CapEx as well as demand creation, brand building, marketing, things like that. Third is we always look at stock buybacks. A lot of that has to do with where our own stock is trading. So you saw us buyback pretty aggressively back in October, where the stock had dropped and we went in to support it because at the time we viewed that as really a great value. And an excellent way for us to return money and value to shareholders. So I think those are really going to be our three areas. They continue to be those three. And I truly believe that M and A will pick up Again, right now, it's a little bit there's a lot of anticipation, but I think that we're going to see it pick up.

Great. That's That's super helpful. And then just second from us. I guess maybe appreciate some of the color around timing of shipments, but maybe if you could touch on sentiment and maybe optimism that you might be seeing, I guess, first around the Garden segment favorable wet [indiscernible] as well any commentary around the segment from your pet retailers? Thank you.

So this is JD. I'll go first and talk a little bit about outlook for the season.

I'd say that we're out of the gates well. A great start to the year. We're pleased with the financial performance of the Garden segment, but we have to keep it in perspective. As we've said many times, we still have the season and 85% of our year is still in front of us. I am pleased that our team is executing at a really high level. So our fall inventory build, gaining support from the retailers for the upcoming execution at retail, all of those things are happening and that we're feel very good about that and I feel like we're ready for the season.

Retailers are also highly engaged, very excited about the season. They drive an awful lot of their spring foot traffic through the lawn and garden department. So they're very much engaged and I'd say that our relationships with those retailers have never been better. So kudos to our sales teams for that. I expect it to be a very competitive marketplace in the upcoming spring.

Display support that I spoke to. So I think in general, we feel very good about the controllable causal factors. Those things are within our control. We feel great about it. And we're ready. [indiscernible] I think that if I said this earlier, but if Mother Nature does her part, It was a challenge last year. So I think just normal weather [indiscernible] whatever that looks like be an improvement year over year and should lead to better results for the Garden segment.

So we're cautiously optimistic. And on the pet side, I'd say something pretty similar. We're off to a really good start. We feel good where we're at. We've got strong relationships with our customers. We've done a really nice job. Our sales force working with our business units, to identify gaps and opportunities with our customers to drive more distribution And I think we're going to see some nice distribution gains in the back So we feel really good where we're at to be able to have a really good year I think the challenge with the pets pet side is, hey, does this new pet acquisition pick up and when does it pick up? And if it does, we get super excited I'd just add on the pet side. I mean, just exceptional execution on ecom continues to be key growth area. On ecom, we have invested. We built capability around content, retail media, our data and analytics are much stronger than they were before. We've built additional fulfillment capabilities give us more flexibility about how we get our product direct to the consumer. So we're doing all the right things and feel really good where we're at. And our next question comes from Carla Paseo JPMorgan.

Please proceed.

Hi. Most of my questions have been answered, but I'm wondering if you could give us a little more color on the pet side about whether you're seeing any more stability in that Pet Specialty channel or if you're still seeing that channel mix shift [indiscernible] [indiscernible] Yes, this is John. It's a challenged channel right now. [indiscernible] and that a lot of that's driven by new pet acquisition. A lot of the consumers when they're looking for new pets, both to understand and get advice from retailers as well as make the purchase that go into pet specialty.

So traffic related to that new pet acquisition has been a bit soft. We stay really close. We've got great relationships with the customers in that channel. And but in the near term, is challenged.

Okay, great. Thank you.

And our next question comes from Hale Holden Barclays.

Hi, good afternoon. I just had two real quick ones. On the sequential improvement in pet durables, How does that look like on a two year basis? Are we really seeing start to flatten out towards a stabilized trend line that you can grow from? Or is it just [indiscernible] Easier year over year comps?

It's less of a decline on a sequential basis. Right? But it's still a year on year decline. [indiscernible] again, talking about the pet ownership, but also this de minimis tariff exception it's a bit hard to quantify how much of that is related to inexpensive products coming out of Asia. You can go on to some of these websites and look at like a pet bed and it's very inexpensive coming out of Asia.

That is going to don't know if it's going to stop, but it certainly is going to be more challenging for that to happen And I do believe that is going to have a a positive impact on our business. It's just hard to say how much. Right now. [indiscernible] And then the second question I had is, I don't know you guys have covered this a little bit on the call, Just really simplistically, why was the pull forward in Garden this quarter of the things I heard was maybe the weather was better in December, maybe your customers were loading up a little bit earlier. Than Central, but I'm sure you got some pretty direct feedback from your larger customers on what drove it?

Sure, Hale. This is JD. The think that for the most part during the quarter, consumption and shipments tracked very closely to one another. But historically, right at the December, we always have a number of shipments that go to our larger customers to set the stores for the upcoming spring season. So they moved from Christmas in their stores right into lawn and garden. And that usually starts setting the first week in January. The initial shipments are scheduled to go late December.

Now most of our customers pick up at our DCs distribution Central.

So it's difficult to predict exactly when those trucks are going to show up. They may show up a day or two before Christmas. A lot of them show up between Christmas and New Year, so it's difficult for us to predict. We got more shipments out than we anticipated. We had the orders, their trucks showed up and we were able to get those out in two less shipping days than what we had the prior year. So all of those variables came into play It made us cautious in what we were predicting for the December. Actually got a lot more shipments out than we were anticipating. Kudos to our supply chain team. That's what drove a lot of the shipments. Now it's strictly timing. So it's whether that ship the December, the January, it's for the same purpose and it's not consumption driven. It's to set the stores for the coming spring season. So the early shipments in December most likely to normalize and come out of Q2 shipments. [indiscernible] not a net gain, just a timing difference, that's all. Does that make sense?

It makes total sense. I'm going to still give Nico credit for the beat this quarter though.

So thank you guys.

Thank you. Absolutely.

This was our last question. Thank you everyone for joining us today. Available to answer any additional questions you might have after this call. Thank you.

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