Central Garden & Pet's 2025 Outlook: Margins on the Mend, Strategy in Focus

Central Garden & Pet (CWGT), a major player in pet and garden products, has been navigating a challenging retail environment with a mix of resilience and strategic discipline. While its top-line growth remains under pressure, the company's focus on margin expansion and cost-cutting initiatives is proving to be a bright spot. Here's why investors should pay attention to its 2025 outlook—and whether it's a buy.

The Margin Story: Productivity Overcomes Headwinds

Let's start with the numbers. In fiscal 2024, Central Garden's gross margin rose 90 basis points to 29.5%, driven by productivity improvements and moderating inflation. This is a critical win in an era of thin margins across retail and consumer goods. Even more telling: non-GAAP gross margin expanded by 110 basis points to 30.0%, a clear sign that cost controls are working.

The company's “Cost & Simplicity” initiative—which includes facility closures, inventory management, and streamlining operations—appears to be bearing fruit. Non-GAAP charges related to these efforts totaled $45 million in fiscal 2024, but the long-term benefits are starting to outweigh the short-term pain.

Execution Meets Opportunity: The 2025 Turnaround

Central Garden's updated fiscal 2025 guidance is the real headline here. Initially projecting non-GAAP EPS of $2.20 or higher, the company recently upgraded its outlook to $2.60, a 18% increase. This revision is not just a numbers game—it reflects execution in two key areas:

1. Deflationary Pricing & Mix Improvements: The company is benefiting from lower input costs and a shift toward higher-margin products. In the Pet segment, while sales fell 2%, management highlighted stronger performance in premium brands and categories, which typically carry better margins.

2. Operational Leverage: With cash flow from operations rising to $395 million (up from $382 million), Central Garden has the liquidity to invest selectively. Capital expenditures are expected to stay muted at $60 million, freeing up cash to fund share buybacks (they've already repurchased $61 million year-to-date).

Risks Linger, but Management Has a Plan

No story is without risks. Central Garden's fiscal 2024 fourth-quarter results were dented by a $13 million impairment of grass seed inventory, highlighting the volatility of agricultural commodity prices. Additionally, the Pet segment's organic sales fell 6%, signaling lingering pressure in a competitive space.

Yet management is addressing these issues head-on. The company is:
- Reducing reliance on volatile categories like grass seed through diversification.
- Accelerating digital initiatives to cut costs and improve customer engagement.
- Maintaining a strong balance sheet: cash increased to $754 million, and leverage stayed manageable at 3.1x.

What This Means for Investors

Central Garden's stock has underperformed peers in recent quarters, but the margin expansion and guidance upgrade suggest a turning point. Buy the dips, especially if the stock pulls back after near-term earnings (its next update is due August 6). Key catalysts ahead include:

• August 6 Earnings Call: Look for clarity on Cost & Simplicity savings and Pet segment recovery.
• 2025 Full-Year EPS Delivery: Achieving $2.60 would validate management's ability to execute in a tough environment.

Final Take

Central Garden & Pet isn't a high-growth story, but it's becoming a case study in margin discipline. With a strong cash position, a clear strategy, and an upgraded outlook, the stock offers asymmetric upside for investors willing to look past short-term sales softness. The key question: Can management sustain margin gains while navigating macro risks? The early signs say yes.

Recommendation: Accumulate on weakness. Target price: $28–$30 (assuming $2.60 EPS and a 12x multiple). Avoid if macro conditions worsen or inventory issues resurface.

Data as of July 7, 2025. Always conduct your own research before making investment decisions.