Central Garden & Pet Company CENT faced challenges over the last six months, in turn, experiencing a stock price decline of 13.1%. This stands in contrast with the broader industry and the S&P 500 index's rise of 14.2% and 3.6%, respectively.

 

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Closing at $36.65 yesterday, the stock moved down 22.7% from its 52-week high of $47.48 attained on May 15, 2024. Also, the stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum.

 

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The stock came under pressure following the company’s soft third-quarter 2024 results wherein both revenues and earnings declined year over year. The company faced challenges across its Pet and Garden segments, contributing to the decline. The company contends with uncertain consumer demand, shifting retailer dynamics and ongoing geopolitical challenges.

Reflecting the negative sentiment around CENT, the Zacks Consensus Estimate for fiscal 2024 and 2025 has seen downward revisions. In the past 60 days, analysts have lowered estimates for the current fiscal by 5.4% to $2.11 and for the next fiscal by 2.4% to $2.42 per share.

 

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Comprehensive Analysis of CENT Stock

The Pet segment is facing challenges, with organic net sales declining by 2.2% in the third quarter of fiscal 2024. The durable pet products category struggles due to reduced consumer spending and fewer new pet adoptions, despite some growth in consumable pet products. This ongoing pressure suggests that Central Garden & Pet may have difficulty maintaining overall sales growth in the Pet segment in the future.

The Garden segment negatively impacted the company's performance, with sales down 6.1% and organic net sales declining 3.7% in the fiscal third quarter. Adverse weather conditions, such as cold and wet weather followed by extreme heat, hurt live plant sales. Additionally, the sales of the independent garden channel distribution business, accounting for about 5% of Garden segment sales, further affected overall performance.

During the third quarter, the company reported lower foot traffic in its largest home center customers compared to the prior year and pre-COVID levels. This decline in foot traffic is concerning as it directly affects sales volumes, in the Garden segment. The reduced customer visits to key retail partners could lead to lower product turnover, increased inventory levels and the need for discounting to clear stock, all of which would negatively impact margins.

Adjusted operating margin contracted by 60 basis points to 12.8% in the third quarter. This contraction suggests that the company's profitability is under pressure, particularly as adjusted SG&A expenses rose by 4.9% compared to the previous year and deleveraged 140 basis points as a percentage of net sales. The increase in SG&A due to acquisitions and higher legal costs, has not been sufficiently offset by revenue growth or cost-cutting efforts.

The ongoing shift in consumer behavior, possibly driven by economic uncertainty or changing shopping preferences, poses a risk to the company's traditional sales channels and could result in sustained revenue pressure. Central Garden & Pet continues to estimate fiscal 2024 adjusted earnings to be $2.00 per share despite anticipating a one-time charge of $15-20 million in the fiscal fourth quarter.