Central Garden & Pet Company CENT has faced a sharp decline in its stock price, dropping 10.6% over the past three months. This stark contrast to the industry’s growth of 13.9% signals underlying challenges for the company. 

This Walnut Creek, CA-based company is grappling with significant challenges that have hurt its financial results. This was reflected in its third-quarter fiscal 2024 results, wherein both revenues and earnings declined year over year. The company's difficulties are rooted in its core Pet and Garden segments.

The company generated net sales of $996.3 million, which came below the Zacks Consensus Estimate of $1,008 million. The metric declined 2.6% from the year-ago period. Organic net sales decreased 3%. Adjusted earnings of $1.32 per share dropped from the year-ago period’s earnings of $1.40 per share.

Following Central Garden & Pet Company’s soft performance, analysts have revised their earnings estimates downward. The Zacks Consensus Estimate for earnings per share (EPS) has decreased over the past 30 days. The consensus mark for the current and next fiscal year EPS has declined by 5.4% and 2.4% to $2.11 and $2.42 per share, respectively.

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What’s Hurting CENT Stock?

Central Garden & Pet has faced external pressures such as unfavorable weather conditions and a softer consumer spending environment. The Garden segment, which saw a 6% sales decline during the third quarter, was affected by adverse weather conditions. The cold and wet weather in April and May, followed by record heat in June, severely impacted the sell-through of live plants, a critical category for Central Garden & Pet. The segment's performance was also affected by the sale of the independent garden channel distribution business, which represented about 5% of Garden segment sales.

During the third quarter, the company reported lower foot traffic in its largest home center customers compared to the prior year and pre-COVID-19 levels. This decline in foot traffic is concerning as it directly affects sales volumes, particularly 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.

We note that the continued weakness in the durable pet products business and softness in new pet adoptions also contributed to the overall decline in the top line. The Pet segment’s organic net sales decreased 2.2% in the third quarter. The ongoing pressure in this category, despite growth in consumable pet products, suggests that the company may struggle in the Pet segment. We foresee sales from the Pet segment to decline 5.6% in the final quarter of the current fiscal.

Central Garden & Pet continues to estimate fiscal 2024 adjusted earnings to be $2.00 per share or better. The projection suggests uncertain consumer demand, shifting retailer dynamics, and ongoing macroeconomic and geopolitical challenges.

Investor Guidance for CENT Stock

Shares of Central Garden & Pet Company have struggled on the bourses of late, underperforming the industry. The dismal performance traces to macroeconomic pressures impacting consumer discretionary spending. These challenges were evident in third-quarter fiscal 2024 results, marked by a decline in revenues and earnings.

CENT faces headwinds in its Pet and Garden segments, compounded by external factors. To navigate the challenging environment, management is advancing with its cost and simplicity program as well as investing in capacity expansion and automation. We believe these endeavors will reap benefits over time. For now, existing investors should tread cautiously and evaluate whether to hold or adjust their positions in this Zacks Rank #4 (Sell) stock.

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