CENTRAL GARDEN & PET CO (CENT) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion of the financial results, liquidity and other key items related to our performance. This discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-K. This Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See “Forward-Looking Statements” and “Item 1A – Risk Factors.”

Business Overview

Central Garden & Pet Company is a leading manufacturer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States.

In fiscal 2024, our consolidated net sales were $3.2 billion, of which our Pet segment, or Pet, accounted for approximately $1.8 billion and our Garden segment, or Garden, accounted for approximately $1.4 billion. In fiscal 2024, our operating income was $185 million, consisting of income from our Pet segment of $203 million, income from our Garden segment of $82 million and corporate expenses of $100 million.

Fiscal 2024 Financial Highlights

Financial summary:

•Net sales for fiscal 2024 decreased $109.6 million, or 3.3%, to $3.2 billion. Organic net sales decreased 3.9% with Pet organic sales decreasing 5.9% and Garden organic sales decreasing 1.2%.

•Gross profit for fiscal 2024 declined $3.1 million, or 0.3%, to $943.7 million while gross margin increased 90 basis points in fiscal 2024 to 29.5%, from 28.6% in fiscal 2023. On a non-GAAP basis, gross margin increased 110 basis points in fiscal 2024.

•Our operating income declined $25.3 million, or 12.0%, to $185.4 million in fiscal 2024. On a non-GAAP basis, operating income declined $4.4 million in fiscal 2024.

•Net income for fiscal 2024 was $108.0 million, or $1.62 per share on a diluted basis compared to $125.6 million, or $1.88 per share on a diluted basis in fiscal 2023. On a non-GAAP basis, net income in fiscal 2024 was $142.4 million, or $2.13 per share on a diluted basis compared to $138.5 million, or $2.07 per share on a diluted basis in fiscal 2023.

Recent Developments:

Cost and Simplicity program - Facility Closures and Business Exit

The following activities reflect our ongoing network optimization initiative to achieve a simpler, more efficient manufacturing and distribution network.

In our Pet segment, during the fourth quarter of fiscal year 2024, as part of our Cost and Simplicity program we decided to close a manufacturing facility in California, which we plan to exit in June 2025, and a facility in Arizona, which we plan to exit in January 2025. The associated pet bed, outdoor cushion and durable pet supply manufacturing and distribution activities will be transitioned to Central facilities in Indiana and North Carolina. As a result, we incurred approximately $7.5 million of one-time costs, including $5.2 million in cost of goods sold and $2.3 million in selling, general and administrative costs, comprised of charges for facility closures, the impairment of inventory and severance, the majority of which were non-cash. Additionally, related to the pet supplies business activities being transitioned, we recognized a non-cash impairment charge of $12.8 million related to the impairment of intangible assets due primarily to changing market conditions resulting from the decline in demand for durable products and increased international competition.

In our Garden segment, during the fourth quarter of fiscal year 2024, we recognized incremental expense of $3.9 million in selling, general and administrative expenses, related to facility closures and business exits announced in fiscal 2023 and earlier in fiscal 2024.

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In our Garden segment, during the third quarter of fiscal year 2024, as part of our Cost and Simplicity program and in response to changing market conditions, we decided to exit the pottery business which we expect to be completed by calendar year-end 2025. Additionally, we closed a live goods distribution facility in Delaware and relocated our grass seed research facility from Oregon to Texas. As a result, in fiscal 2024 we incurred approximately $10.9 million of one-time costs, including $8.6 million in cost of goods sold and $2.3 million in selling, general and administrative costs, comprised of charges for the impairment of inventory and facility closures, the majority of which were non-cash.

In our Garden segment, during the second quarter of fiscal year 2024, as part of our Cost and Simplicity program we decided to close a manufacturing facility in California. Additionally, in the second quarter, we began the Southeast consolidation of four distribution locations into one new modern facility, which we expect to be completed by calendar year-end. As a result, we incurred approximately $5.3 million of one-time costs, including $2.5 million in cost of goods sold and $2.8 million in selling, general and administrative costs, comprised of charges for facility closures, severance, and impairment of inventory, the majority of which were non-cash.

Litigation Settlement Gain and Investment Impairment

Within corporate, we recognized a gain of $3.2 million during the fourth quarter of fiscal 2024, for the settlement of litigation, which is included in selling, general and administrative expense. Additionally, we recognized a $7.5 million non-cash impairment charge for two related private company investments that is included within Other income (expense) in the consolidated statement of operations.

Stock Dividend

In December 2023, our Board of Directors approved a stock dividend in the form of one share of the Company's Class A Common Stock for every four outstanding shares of its Common Stock, Class A Common Stock and Class B Stock, which shares were distributed on February 8, 2024, to stockholders of record as of January 8, 2024.

The stock dividend did not affect the number of the Company's authorized shares and the par value of each share of stock remained unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and performance share units outstanding at January 8, 2024, which resulted in a proportional increase in the vesting of such stock options, restricted stock and performance share units, and, in the case of stock options, a proportional decrease in the exercise price of all such stock options.

Unless noted, all Class A Common share and per share amounts contained in this Form 10-K have been retroactively adjusted to reflect the one-for-four stock dividend.

Fiscal 2024 Acquisition

In November 2023, we acquired TDBBS, LLC (“TDBBS”), a provider of premium natural dog chews and treats for approximately $60 million. The addition of TDBBS expands our portfolio with bully and collagen sticks, bones and jerky, adds scale to our dog and cat business and enhances our eCommerce and direct-to-consumer capabilities.

Fiscal 2025 Stock Repurchases

Since our fiscal year ended September 28, 2024 through November 21, 2024, we repurchased 1.3 million shares of our non-voting common stock (CENTA) and 0.4 million shares of our voting common stock (CENT) on the open market at an aggregate cost of $51.7 million. As of November 21, 2024, we had $30.3 million remaining under our 2019 Repurchase Authorization.

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Results of Operations (GAAP)

The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales:

Fiscal 2024 Compared to Fiscal 2023

Net Sales

Net sales for fiscal 2024 decreased $109.6 million, or 3.3%, to $3,200.5 million from $3,310.1 million in fiscal 2023. Fiscal 2024 included 52 weeks while fiscal 2023 included 53 weeks. Our branded product sales, which include products we produce under Central brand names and products we produce under third-party brands, decreased $80.2 million, and sales of other manufacturers’ products decreased $29.4 million. Sales of branded products represented approximately 78% of our net sales in both fiscal 2024 and fiscal 2023, and sales of other manufacturers' products represented 22% of our net sales.

Organic net sales, which exclude net sales from the acquisition of TDBBS in November 2023 and net sales from the independent garden channel distribution business we sold in the prior fiscal year, declined $127.9 million, or 3.9%, as compared to the prior fiscal year. The decline in organic net sales was due primarily to lower Pet sales.

The following table indicates each class of similar products which represented approximately 10% or more of our consolidated net sales in the fiscal years presented:

Pet net sales decreased $44.4 million, or 2.4%, to $1,832.8 million in fiscal 2024 from $1,877.2 million in fiscal 2023. Pet organic sales, which exclude net sales from the acquisition of TDBBS in November 2023, declined $110.8 million. Fiscal 2023 included an extra week compared to fiscal 2024. The decline in Pet net sales was volume-related and due primarily to lower demand for durable pet products, particularly in our outdoor cushion business, aquatics business, and pet bed business. These declines were partially offset by increased sales in our animal health business. Pet branded sales decreased $45.4 million, and sales of other manufacturers' products increased $1.0 million.

Garden net sales decreased $65.2 million, or 4.5%, to $1,367.7 million in fiscal 2024 from $1,432.9 million in fiscal 2023. Garden organic sales, which exclude net sales from the independent garden channel distribution business sold in the fourth quarter of fiscal 2023, decreased $17.1 million, or 1.2%. The Garden net sales decline was volume related and due primarily to lower sales in wild bird feed partially offset by increased sales in our controls and grass seed businesses. Additionally, fiscal 2023 included an extra week compared to fiscal 2024. Garden branded sales decreased $34.8 million, and sales of other manufacturers' products decreased $30.4 million.

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Gross Profit

Gross profit in fiscal 2024 decreased $3.1 million, or 0.3%, to $943.7 million from $946.8 million in fiscal 2023. Gross margin improved 90 basis points to 29.5% in fiscal 2024 from 28.6% in fiscal 2023. The decline in gross profit resulted from decreased Garden gross profit, partially offset by an increase in Pet. The improved gross margin was due primarily to the higher gross margin in Pet partially offset by a lower gross margin in Garden. Both segments were adversely impacted by fiscal 2024 facility closure projects under our Cost and Simplicity initiative.

On a non-GAAP basis, excluding the charges associated with the facility closures in fiscal 2024, gross profit increased $3.5 million and gross margin improved 110 basis points to 30.0% in fiscal 2024. These increases were due primarily to the benefits resulting from Central's Cost and Simplicity program and lower inflation.

Both Pet and Garden benefitted from the results of the Cost and Simplicity program and lower inflation. The increase in the Pet gross margin was partially offset by a lower gross margin, as compared to the prior fiscal year. The decrease in Garden was due primarily to an approximately $19 million write-down of the value of our grass seed inventory due to a recent significant decrease in the market prices of grass seed and what we believe to be an industry-wide over supply of grass seed and lower sell through in our Live Goods business.

Selling, General and Administrative

Selling, general and administrative expenses increased $22.1 million, or 3.0%, from $736.2 million in fiscal 2023 to $758.3 million in fiscal 2024. As a percentage of net sales, selling, general and administrative expenses increased from 22.2% in fiscal 2023 to 23.7% in fiscal 2024. The increase was due to $21.1 million in expense related to the closure of facilities in both the Pet and Garden segments and intangible asset impairments, partially offset by the gain from a litigation settlement. Excluding these items and similar items in fiscal 2023, non-GAAP selling, general and administrative expense increased $7.9 million and increased as a percentage of net sales to 23.0% in fiscal 2024 compared from 22.0% in fiscal year 2023.

Selling and delivery expense increased $2.3 million, or 0.7%, to $339.8 million in fiscal 2024 and increased as a percentage of net sales from 10.2% in fiscal 2023 to 10.6% in fiscal 2024. The increase in selling and delivery expense was in the Pet segment due primarily to our acquisition of TDBBS in November 2023.

Warehouse and administrative expense increased $19.8 million, or 5.0%, to $418.5 million in fiscal 2024 and increased as a percentage of net sales from 12.0% in fiscal 2023 to 13.1% in fiscal 2024. The increase in warehouse and administrative expense was due to increases in both the Pet and the Garden segments, partially offset by lower corporate expense. The increases in both the Pet and Garden segments were due primarily to the charges related to the closure of facilities, the exit of the pottery business and the impairment of intangible assets. Excluding these expense items, warehouse and administrative expense increased $8.9 million in fiscal 2024 as compared to fiscal 2023, due primarily to the acquisition of TDBBS in November 2023.

Corporate expense decreased due primarily to lower equity compensation and the gain from a litigation settlement. Corporate expenses included within administrative expense relate to the costs of unallocated executive, administrative, finance, legal, human resources, and information technology functions.

Operating Income

Operating income decreased $25.2 million, or 12.0%, to $185.4 million in fiscal 2024 from $210.6 million in fiscal 2023. Our operating margin was 5.8% in fiscal 2024, decreasing from 6.4% in fiscal 2023. Decreased sales of $109.6 million and increased selling, general and administrative expenses, partially offset by a 90 basis point increase in gross margin, contributed to the lower operating income. The increased selling, general administrative expenses were due primarily to facility closures and intangible asset impairments. Excluding the impact of these costs, on a non-GAAP basis, operating margin was 7.0% in fiscal 2024 compared to 6.9% in fiscal 2023.

Pet operating income increased $5.4 million, or 2.7%, to $203.4 million in fiscal 2024 from $198.0 million in fiscal 2023, due to an improved gross margin partially offset by lower net sales and increased selling, general and administrative expenses. Pet operating margin increased from 10.5% in fiscal 2023 to 11.1% in fiscal 2024. On a non-GAAP basis, Pet operating income increased $7.3 million in fiscal 2024 as compared to fiscal 2023 and operating margin improved to 12.2% in fiscal 2024 from 11.5% in fiscal 2023.

Garden operating income decreased $41.6 million, or 33.7%, to $81.9 million in fiscal 2024 from $123.5 million in fiscal 2023, due to lower sales, a lower gross margin, and higher selling, general and administrative expenses. Both gross margin and selling, general and administrative expenses were impacted by charges related to the closure of facilities and the planned exit of the pottery business. On a non-GAAP basis that excludes the impact of these charges in both fiscal 2024 and fiscal 2023, Garden non-GAAP operating income declined $19.4 million in fiscal 2024 as compared to fiscal 2023 and non-GAAP operating margin declined to 7.5% in fiscal 2024 from 8.5% in fiscal 2023 due primarily to a write-down of the value of our grass seed inventory due to a recent significant decrease in the market prices for grass seed and what we believe to be an industry-wide over supply of grass seed and lower sell through in our Live Plants business.

Corporate expenses decreased $10.9 million due primarily to lower equity compensation and the gain from a litigation settlement.

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Net Interest Expense

Net interest expense decreased $11.8 million, or 23.7%, from $49.7 million in fiscal 2023 to $37.9 million in fiscal 2024. The decrease in net interest expense was due to increased interest income due primarily to higher cash balances during fiscal 2024.

Debt outstanding on September 28, 2024 was $1,190.0 million compared to $1,188.2 million as of September 30, 2023. Our average borrowing rate was 4.5% in both fiscal 2024 and fiscal 2023.

Other Income (Expense)

Other income (expense) is comprised of income or loss from investments accounted for under the equity method of accounting and foreign currency exchange gains and losses. Other income (expense) was an expense of $5.1 million in fiscal 2024 compared to income of $1.5 million in fiscal 2023, due primarily to a $7.5 million impairment in fiscal 2024 for two private company investments.

Income Tax

Our effective income tax rate was 23.2% for fiscal 2024 compared to 22.4% for fiscal 2023. The increase in our effective income tax rate was primarily due to an increase in the blended state income tax rate in fiscal 2024 as compared to fiscal 2023.

Net Income and Earnings Per Share

Our net income for fiscal 2024 was $108.0 million, or $1.62 per diluted share, compared to $125.6 million, or $1.88 per diluted share, for fiscal 2023. On a non-GAAP basis, net income in fiscal 2024 was $142.4 million, or $2.13 per diluted share, compared to $138.5 million, or $2.07 per diluted share, for fiscal 2023.

Fiscal 2023 Compared to Fiscal 2022

For a discussion of our results of operations in fiscal 2023 compared to fiscal 2022, please see Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC.

Use of Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net income and diluted net income per share, non-GAAP operating income, non-GAAP gross profit and gross margin, non-GAAP selling, general and administrative expense, adjusted EBITDA and organic net sales. Management uses these non-GAAP financial measures that exclude the impact of specific items (described below) in making financial, operating and planning decisions and in evaluating our performance. Management believes that these non-GAAP financial measures may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods. While Management believes that non-GAAP measures are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

Adjusted EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization and stock-based compensation expense (or operating income plus depreciation and amortization expense and stock-based compensation expense). Adjusted EBITDA further excludes one-time charges related to facility closures exits of business, intangible and investment impairments and gains from a litigation settlement. We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. Adjusted EBITDA is used by our management to perform such evaluations. Adjusted EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that adjusted EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present adjusted EBITDA when reporting their results. Other companies may calculate adjusted EBITDA differently and it may not be comparable.

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below.

Non-GAAP financial measures reflect adjustments based on the following items:

•Facility closures and business exit: we have excluded charges related to the closure of distribution and manufacturing facilities and our decision to exit the pottery business as they represent infrequent transactions that impact the comparability between operating periods. We believe these exclusions supplement the GAAP information with a measure that may be useful to investors in assessing the sustainability of our operating performance.

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•Asset impairment charges: we exclude the impact of asset impairments on intangible assets and investments as such non-cash amounts are inconsistent in amount and frequency. We believe that the adjustment of these charges supplements the GAAP information with a measure that can be used to assess the performance of our ongoing operations.

•Gain from litigation settlement: we exclude the gain from a litigation settlement as it is a one-time occurrence. We believe that the exclusion of this gain supplements the GAAP information with a measure that can be used to assess the performance of our ongoing operations.

•Gain on sale of a business or service line: we exclude the impact of the gain on the sale of a business as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods. We believe the adjustment of this gain supplements the GAAP information with a measure that may be used to assess the performance of our ongoing operations.

•Tax impact: adjustment represents the impact of the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income. The tax impact of the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.

The non-GAAP adjustments made reflect the following:

Facility closures and business exits

(1)During the fourth quarter of fiscal year 2024, we recognized incremental expense of $7.5 million in our Pet segment in the consolidated statement of operations, from the closure of manufacturing facilities in California and Arizona. Additionally, we recognized incremental expense in our Garden segment of $3.9 million related to facility closures and business exits announced in fiscal 2023 and earlier in fiscal 2024.

(2)During the third quarter of fiscal 2024, we recognized incremental expense of $11.1 million in the consolidated statement of operations, from the decision to exit the pottery business, the closure of a live goods distribution facility in Delaware and the relocation of our grass seed research facility.

(3)During the second quarter of fiscal 2024, we recognized incremental expense of $5.3 million in the consolidated statement of operations from the closure of a manufacturing facility in California and the consolidation of our Southeast distribution network.

(4)During the fourth quarter of fiscal 2023, we recognized a gain of $5.8 million from the sale of our independent garden center distribution business, which includes the impact of associated facility closure costs. The gain is included in selling, general and administrative expense in the consolidated statement of operations.

(5)In fiscal 2023, we recognized incremental expense of $13.9 million in our Pet segment in the consolidated statement of operations from the closure of a manufacturing and distribution facility in Texas. Additionally, we recognized incremental expense of $1.8 million in our Pet segment in the consolidated statement of operations, from the closure of a second manufacturing and distribution facility in Texas.

Intangible Impairments

(6)During the fourth quarter of fiscal 2024, we recognized a non-cash impairment charge in our Pet segment of $12.8 million related to the impairment of intangible assets due primarily to changing market conditions resulting from the decline in demand for durable products and increased international competition.

(7)In fiscal 2023, we recognized a non-cash impairment charge in our Pet segment of $2.8 million related to the impairment of intangible assets caused by the loss of a significant customer in our live fish business. Also, we recognized a non-cash impairment charge in our Garden segment of $3.9 million related to the impairment of intangible assets due to reduced demand for products we sold under an acquired trade name. The impairments were recorded as part of selling, general and administrative costs.

Gain from litigation and investment impairment

(8)Within corporate, the Company received $3.2 million during the fourth quarter of fiscal 2024 in settlement of litigation which gain is included in selling, general and administrative expense. Additionally, we recognized a $7.5 million non-cash impairment charge for two related private company investments that is included within Other income (expense) in the consolidated statement of operations.

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Inflation

Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, interest rates, consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending. In fiscal years 2021 through 2023, we were adversely impacted by high input costs due to inflation, particularly relating to prices for grain and seed, fuel and the ingredients used in our garden controls and fertilizer business as well as heightened import costs such as shipping container costs and tariffs. In fiscal 2022, our gross and operating margins increased as we were able to sufficiently increase prices and volumes to offset higher input costs. Costs continued rise in fiscal 2023, however, and we were unable to continue to increase prices and our gross and operating margins were negatively impacted. Inflation began to moderate in late fiscal year 2023 and continued to moderate in fiscal 2024, and we were able to benefit from lower cost inventory and significant productivity gains resulting in improved margins.

In fiscal 2022, we experienced increasing inflationary pressure, including notable increases in costs for key commodities, materials, labor and freight. During fiscal 2023, we continued to experience inflationary pressures, although at a reduced rate in the latter months of the fiscal year. In fiscal 2024, we experienced moderating inflation.

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Weather and Seasonality

Our sales of lawn and garden products are influenced by weather and climate conditions in the different markets we serve. Our Garden segment’s business is highly seasonal. In fiscal 2024, approximately 66% of our Garden segment’s net sales and 59% of our total net sales occurred during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is typically generated in this period.

Liquidity and Capital Resources

We have financed our growth through a combination of internally generated funds, bank borrowings, supplier credit, and sales of equity and debt securities to the public.

Our business is seasonal and our working capital requirements and capital resources track closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are substantially reduced through conversion of receivables to cash.

We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses involve products that have a year-round selling cycle with a slight degree of seasonality. As a result, it is not necessary to maintain large quantities of inventory to meet peak demands. Our lawn and garden businesses are highly seasonal with approximately 66% of our Garden segment’s net sales occurring during the second and third fiscal quarters. This seasonality requires the shipment of large quantities of product well ahead of the peak consumer buying periods. To encourage retailers and distributors to stock large quantities of inventory, industry practice has been for manufacturers to give extended credit terms and/or promotional discounts.

Operating Activities

Net cash provided by operating activities increased $13.3 million, from $381.6 million in fiscal 2023 to $394.9 million in fiscal 2024. The increase in cash provided was due primarily to changes in our working capital accounts, due to increases in accounts payable and accrued expenses, partially offset by a lower amount of cash generated from the decrease in accounts receivable, as compared to the prior year.

Net cash provided by operating activities increased $415.6 million, from $34.0 million of cash used in operating activities in fiscal 2022 to $381.6 million of cash provided by operating activities in fiscal 2023. The increase in cash provided was due primarily to changes in our working capital accounts, primarily a decrease in inventory, due to our focus on converting inventory to cash, and in accounts receivable.

Investing Activities

Net cash used in investing activities increased $70.6 million from $34.6 million in fiscal 2023 to $105.2 million in fiscal 2024. The increase in cash used in investing activities was due primarily to our acquisition of TDBBS, LLC.

Net cash used in investing activities decreased $108.4 million from $143.0 million in fiscal 2022 to $34.6 million in fiscal 2023. The decrease in cash used in investing activities was due primarily to reduced capital expenditures, decreased investments in fiscal 2023 compared to fiscal 2022, and proceeds received from the sale of our independent garden center distribution business.

Financing Activities

Net cash used in financing activities decreased $12.1 million from $37.6 million in fiscal 2023 to $25.4 million in fiscal 2024. The decrease in cash used in financing activities during the current year was due primarily to lower stock repurchase activity in fiscal 2024 compared to fiscal 2023.

Net cash used in financing activities decreased $29.2 million from $66.8 million of cash used in fiscal 2022 to $37.6 million of cash used in fiscal 2023. The decrease in cash used in financing activities during the current year was due primarily to lower stock repurchase activity in fiscal 2023 compared to fiscal 2022.

We expect that our principal sources of funds will be cash generated from our operations, proceeds from our debt and equity offerings, and, if necessary, borrowings under our $750 million asset backed loan facility. See Note11 - Long-Term Debt, for more information about our debt. Based on our anticipated cash needs, availability under our asset backed loan facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months and beyond. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.

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We anticipate that our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $70 million over the next 12 months.

As part of our growth strategy, we have acquired a large number of businesses in the past, and we anticipate that we will continue to evaluate potential acquisition candidates in the future. If one or more potential acquisition opportunities, including those that would be material, become available in the near future, we may require additional external capital. In addition, such acquisitions would subject us to the general risks associated with acquiring companies, particularly if the acquisitions are relatively large.

Stock Repurchases

During fiscal 2024, we repurchased approximately 0.3 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $10.7 million and approximately 3 thousand shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $109 thousand. During fiscal 2023, we repurchased approximately 0.8 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $22.9 million and approximately 0.3 million shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $8.7 million.

In August 2019, our Board of Directors authorized a share repurchase program to purchase up to $100 million of our common stock (the "2019 Repurchase Authorization"). The 2019 Repurchase Authorization has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its authorization. As of September 28, 2024, we had $82 million remaining under our 2019 Repurchase Authorization.

In February 2019, the Board of Directors authorized us to make supplemental purchases to minimize dilution resulting from issuances under our equity compensation plans (the "Equity Dilution Authorization"). In addition to our regular share repurchase program, we are permitted to purchase annually a number of shares equal to the number of shares of restricted stock or stock options granted in the prior fiscal year, to the extent not already repurchased, and the current fiscal year. The Equity Dilution Authorization has no fixed expiration date and expires when the Board withdraws its authorization. As of September 28, 2024, the Company had authorization remaining to repurchase up to 38 thousand shares under its Equity Dilution Authorization.

During the period September 29, 2024 through November 21, 2024, we repurchased 1.3 million shares of our non-voting common stock (CENTA) and 0.4 million shares of our voting common stock (CENT) on the open market at an aggregate cost of $51.7 million. As of November 21, 2024, we had $30.3 million remaining on under our 2019 Repurchase Authorization.

Total Debt

At September 28, 2024, our total debt outstanding was $1,190.0 million versus $1,188.2 million at September 30, 2023.

Senior Notes

$400 million 4.125% Senior Notes due 2031

In April 2021, we issued $400 million aggregate principal amount of 4.125% senior notes due April 2031 (the "2031 Notes"). We used a portion of the net proceeds from the offering to repay all outstanding borrowings under our Amended Credit Facility, with the remainder used for general corporate purposes.

We incurred approximately $6 million of debt issuance costs in conjunction with this issuance, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2031 Notes.

The 2031 Notes require semi-annual interest payments on April 30 and October 30. The 2031 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Amended Credit Facility. The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the Securities Act of 1933.

We may redeem some or all of the 2031 Notes at any time, at our option, prior to April 30, 2026, at the principal amount plus a "make whole" premium. The Company may redeem some or all of the 2031 Notes at its option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.

The holders of the 2031 Notes have the right to require us to repurchase all or a portion of the 2031 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of specific kinds of changes of control.

The 2031 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of September 28, 2024.

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$500 million 4.125% Senior Notes due 2030

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). We used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder used for general corporate purposes.

We incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.

The 2030 Notes require semiannual interest payments on October 15 and April 15. The 2030 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Credit Facility.

We may redeem some or all of the 2030 Notes at any time, at our option, prior to October 15, 2025, at a price equal to 100% of the principal amount plus a “make-whole” premium. We may redeem some or all of the 2030 Notes, at our option at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

The holders of the 2030 Notes have the right to require us to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of September 28, 2024.

$300 Million 5.125% Senior Notes due 2028

In December 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). We used the net proceeds from the offering to finance acquisitions and for general corporate purposes.

We incurred approximately $4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.

The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our Credit Facility.

We may redeem some or all of the 2028 Notes, at our option, at any time before December 31, 2024 for 101.708%, on or after January 1, 2025 for 100.854% and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.

The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2028 Notes contain customary high-yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of September 28, 2024.

Asset-Based Loan Facility

On December 16, 2021, we entered into a Third Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400 million principal amount available with the consent of the Lenders, as defined, if we exercise the uncommitted accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 16, 2026. We may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.

The Credit Facility is subject to a borrowing base that is calculated using a formula based upon eligible receivables and inventory, and at our election, eligible real property, minus certain reserves. Proceeds of the Credit Facility may be used for general corporate purposes. Net availability under the Credit Facility was approximately $481 million as of September 28, 2024. The Credit Facility includes a $50 million sublimit for the issuance of commercial and standby letters of credit and a $75 million sublimit for Swing Loan borrowings. As of September 28, 2024, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. Outside of the Credit Facility, there were other letters of credit of $3.0 million outstanding as of September 28, 2024.

Borrowings under the Credit Facility will bear interest at an index based on SOFR (which will not be less than 0.00%) or, at our option, the Base Rate, plus, in either case, an applicable margin based on our usage under the Credit Facility. Base Rate is defined as the highest of (a) the Truist prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month SOFR plus 1.00% and (d) 0.00%. The applicable margin for SOFR-based borrowings fluctuates between1.00%-1.50%, and was 1.0% as of September 28, 2024, and the applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of September 28, 2024. An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments under the Credit Facility. Standby letter of credit fees accruing at the

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applicable margin on the average undrawn and unreimbursed amounts of standby letters of credit are payable quarterly, and a facing fee of 0.125% is payable quarterly for the stated amount of each letter of credit. We are also required to pay certain fees to the administrative agent under the Credit Facility. As of September 28, 2024, the applicable interest rate related to Base Rate borrowings was 8.0%, and the applicable interest rate related to one-month SOFR-based borrowings was 5.8%.

We incurred approximately $2.4 million of debt issuance costs in conjunction with this transaction, which included lender fees and legal expenses. The debt issuance costs are being amortized over the term of the Credit Facility.

The Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1:1 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions. We were in compliance with all financial covenants under the Credit Facility as of September 28, 2024.

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

Central (the "Parent/Issuer") issued $400 million of 2031 Notes in April 2021, $500 million of 2030 Notes in October 2020, and $300 million of 2028 Notes in December 2017. The 2031 Notes, 2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are guarantors of our Credit Facility. The 2031 Notes, 2030 Notes and 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Amended Credit Facility, to the extent of the value of the collateral securing such indebtedness. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent/Issuer. Certain subsidiaries and operating divisions of the Company do not guarantee the 2031, 2030 or 2028 Notes and are referred to as the Non-Guarantors.

The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and interest on the 2031, 2030 and 2028 Notes when due, whether at stated maturity of the 2031, 2030 and 2028 Notes, by acceleration, call for redemption or otherwise, and all other obligations of the Company to the holders of the 2031, 2030 and 2028 Notes and to the trustee under the indenture governing the 2031, 2030 and 2028 Notes (the "Guarantee"). The Guarantees are senior unsecured obligations of each Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.

The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law.

The Guarantee of a Guarantor will be released:

(1) upon any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation), in accordance with the governing indentures, to any person other than the Company;

(2) if such Guarantor merges with and into the Company, with the Company surviving such merger;

(3) if such Guarantor is designated as an Unrestricted Subsidiary; or

(4) if the Company exercises its legal defeasance option or covenant defeasance option or the discharge of the Company's obligations under the indentures in accordance with the terms of the indentures.

The following tables present summarized financial information of the Parent/Issuer subsidiaries and the Guarantor subsidiaries. All intercompany balances and transactions between subsidiaries under Parent/Issuer and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Parent/Issuer's interests in the Guarantor Subsidiaries. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.

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Contractual Obligations

The table below presents our significant contractual cash obligations by fiscal year:

(1)Excludes $3.0 million of outstanding letters of credit related to normal business transactions. Debt repayments do not reflect the unamortized portion of deferred financing costs associated with the 2028 Notes, 2030 Notes and 2031 Notes of approximately $10.3 million as of September 28, 2024, of which $1.6 million is amortizable until February 2028, $4.8 million is amortizable until October 2030 and $4.0 million is amortizable until April 2031, and is included in the carrying value of the long-term debt. See Note 11 - Long-Term Debt to the consolidated financial statements for further discussion of long-term debt.

(2)Estimated interest payments to be made on our 2028 Notes, our 2030 Notes and our 2031 Notes. See Note 11 - Long-Term Debt to the consolidated financial statements for description of interest rate terms.

(3)Contracts for purchases of grains, grass seed and pet food ingredients, used primarily to mitigate risk associated with increases in market prices and commodity availability, may obligate us to make future purchases based on estimated yields. The terms of these contracts vary; some having fixed prices or quantities, others having variable pricing and quantities. For certain agreements,

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management estimates are used to develop the quantities and pricing for anticipated purchases, and future purchases could vary significantly from such estimates.

(4)Possible performance-based payments associated with prior acquisitions of businesses are not included in the above table, because they are based on future performance of the businesses acquired, which is not yet known. Performance-based payments of approximately $0.1 million were made in fiscal 2024 related to Hydro-Organics Wholesale, Inc. Potential performance-based periods extend through fiscal 2025 for Hydro-Organics Wholesale, Inc. and the payments are capped at $1.0 million per year.

Recent Accounting Pronouncements

Refer to the discussion under Part II, Item 8, Notes to Consolidated Financial Statements, Note 1 – Organization and Significant Accounting Policies for a summary of recent accounting pronouncements.

Critical Accounting Policies, Estimates and Judgments

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts and related disclosures in the consolidated financial statements. Estimates and assumptions are required for, among other items, accounts receivable and inventory realizable values, fixed asset lives, long-lived asset valuation and impairments, intangible asset lives, stock-based compensation, deferred and current income taxes, self-insurance accruals and the impact of contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the result of which forms the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.

Although not all inclusive, we believe that the following represent the more critical accounting policies, which are subject to estimates and assumptions used in the preparation of our consolidated financial statements.

Goodwill

Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Identifiable intangible assets acquired in business combinations are recorded based on their fair values at the date of acquisition. Goodwill and identifiable intangible assets with indefinite lives are not subject to amortization but must be evaluated for impairment.

We test goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations, legal and regulatory environments and historical performance. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the quantitative goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative test is performed to identify potential goodwill impairment. Based on certain circumstances, we may elect to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test, which compares the estimated fair value of our reporting units to their related carrying values, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than its carrying value, and an impairment charge is recognized for the differential. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of our two reporting segments to the Company’s total market capitalization.

Determining the fair value of a reporting segment involves the use of significant estimates and assumptions. The estimate of fair value of each of our reporting segments is based on our projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Assumptions critical to our fair value estimates were: (i) discount rates used in determining the fair value of the reporting segments; (ii) estimated future cash flows; and (iii) projected revenue and operating profit growth rates used in the reporting segment models. Actual results may differ from those estimates. The valuations employ present value techniques to measure fair value and consider market factors.

Our goodwill is associated with our Pet segment and our Garden segment. In connection with our annual goodwill impairment testing performed during fiscal 2024, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting segments under the goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment and determined that it was more likely than not the fair values of our reporting segments were greater than their carrying amount in fiscal year 2024, and accordingly, no further testing of goodwill was required in fiscal 2024.

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In connection with our annual goodwill impairment testing performed during fiscal 2023, we elected to bypass the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test. We completed our quantitative assessment of potential goodwill and determined that it was more likely than not the fair values of our reporting segments were greater than their carrying amounts.

In connection with our annual goodwill impairment testing performed during fiscal year 2022, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting segments under the goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment and determined that it was more likely than not the fair values of our reporting segments were greater than their carrying amount in fiscal year 2022, and accordingly, no further testing of goodwill was required in fiscal year 2022.

Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future cash flows and discount rates, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in additional impairment of goodwill.

Intangible assets

Indefinite-lived intangible assets consist primarily of acquired trade names and trademarks. Indefinite-lived intangible assets are tested annually for impairment or whenever events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized for an intangible asset with an indefinite useful life if its carrying value exceeds its fair value.

Indefinite-lived intangible assets are primarily tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, discount rates, weighted average cost of capital, and assumed royalty rates. Future net sales and short-term growth rates are estimated for trade names based on management’s forecasted financial results which consider key business drivers such as specific revenue growth initiatives, market share changes and general economic factors such as consumer spending.

During fiscal 2024, 2023 and 2022, we performed evaluations of the fair value of our indefinite-lived trade names and trademarks. Our expected revenues were based on our future operating plan and market growth or decline estimates for future years. We recognized impairment losses on certain intangible assets of $12.8 million and $11.5 million in fiscal years 2024 and 2023, respectively, and there were no impairment losses recorded in fiscal year 2022.

Acquisitions

In connection with businesses we acquire, management must determine the fair values of assets acquired and liabilities assumed. Considerable judgment and estimates are required to determine such amounts, particularly as they relate to identifiable intangible assets, and the applicable useful lives related thereto. Under different assumptions, the resulting valuations could be materially different, which could materially impact the operating results we report.

We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use a variation of the income approach, whereby a forecast of future cash flows attributable to the asset is discounted to present value using a risk-adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life. Refer to Note 3 - Acquisitions and Investments in Joint Ventures, to the consolidated financial statements included in this Annual Report for additional information regarding our acquisitions.

Our contractual commitments are presented under the caption Liquidity and Capital Resources.