Central Garden & Pet : 2022 Annual Report

We are Central to home

2022

Annual Report

O U R M I S S I O N

Lead the future of the

Garden and Pet industries...

one blade of grass and

one wagging tai at a time

L E A D I N G P O S I T I O N S

Lawn & Garden			Pet Supplies
#2Consumables		#2
	(ex. Dog & Cat Food, Cat Litter)

G R E A T B R A N D S

S O L I D F I N A N C I A L R E S U LT S I N A C H A L L E N G I N G E N V I R O N M E N T

Net

Sales

$3.3

+1%

Gross

Margin

29.7%

+30 bps

Operating

Income

$260

+2%

EPS

$2.80

+2%

DEAR SHAREHOLDERS,

Our success at Central Garden & Pet is the result of every employee's commitment to win together. We also benefit from an amazing ecosystem of stakeholders including our consumers, customers, suppliers and shareholders. I thank all of you for your continued confidence in Central; this is a responsibility and privilege that I am honored to carry.

FISCAL 2022 PERFORMANCE

Thanks to the hard work and dedication of Team Central, we delivered a year of solid financial results in a very challenging operating environment. Headwinds included poor weather during the peak garden season, high inflation across key commodities, freight and labor, evolving consumer behavior, and unfavorable retailer inventory dynamics. Despite these headwinds, we grew net sales, gross margin, operating income, and earnings per share versus prior year, and we exceeded the revised guidance we provided in June.

Our business momentum in the Pet segment slowed due to a number of factors, including the deceleration of pet adoptions, high inflation impacting consumer behavior, a shift of consumer purchases from durable to consumable products, and retailers reducing inventory. As a result of these headwinds, along with SKU rationalization and the purposeful exit of select, low-profit private label product lines, Pet net sales declined by 1%. Excluding the SKU rationalization and private label impact, Pet net sales would have grown versus prior year. From a competitive perspective, we are pleased with our market share performance, with share gains in Small Animal, Equine and Dog Treats.

Our Garden business faced poor weather during the peak season along with increasing economic uncertainty, which resulted in consumer foot traffic declines and excess inventory concerns at our retailers, affecting our product sell-in in the second half of the year. Total Garden net sales increased 4% versus prior year driven by our 2021 acquisitions. While we saw a 7% decline in organic net sales due to the headwinds, our consumption outperformed net sales, indicating that consumers are still engaged in the category and continue to rely on our brands. And we grew share in two key categories: Wild Bird and Grass Seed.

PROGRESS ON OUR CENTRAL TO HOME STRATEGY

In the last 12 months, we continued to make meaningful progress on our Central to Home strategy, which is focused on building capabilities across five strategic pillars to fortify our competitive advantage over the long term.

Consumer

Thanks to the addition of great talent and the efforts of our team, we have significantly advanced our consumer agenda and growth capabilities, including building distinctive brands, creating disruptive innovation, and driving digital marketing excellence. For example, we saw promising early marketing campaign results driving accelerated growth and share gains across several brands both in Pet and in Garden.

Customer

Our efforts to strengthen talent, capabilities and investment in the critical high growth eCommerce channel are manifesting in market share gains and strong sales growth. Our Pet eCommerce business grew 10% and now represents 22% of total Pet, thanks to improved eCommerce fill rates and a double-digit increase in digital marketing ROIs. And our Garden eCommerce business grew 9% and now accounts for mid-single digits of total Garden. We grew market share on a large pureplay e-tailer across our portfolio and return on ad spend improved by double digits on both omnichannel and pureplay customers.

Central

We're proud to have launched our inaugural Impact Report. The report is framed around our sustainability strategy and showcases a range of initiatives and their positive impact across our business units. We outlined three key priorities: protecting our planet, cultivating our communities, and empowering our employees, and our goals in 10 key areas ranging from waste, water and biodiversity to philanthropy and employee volunteering to diversity & inclusion and

learning & development. One of the great examples of our team's passionate work to advance sustainability is our Nylabone dog & cat business, which commissioned rooftop solar panels, mitigating hundreds of thousands of pounds of greenhouse gases. And in our outdoor cushions business, we converted millions of pounds of ocean-bound plastics into our Oceantex branded fabrics.

Cost

Given the continued inflationary environment and challenging economic outlook, we're focused even more on our cost reduction agenda to build margins and fuel growth. Since the beginning of the pandemic, we've simplified our portfolio by eliminating thousands of SKUs, shifted some of our wild bird and garden controls production from co- manufacturers to our own plants and invested in automation to drive improved efficiency in many of our businesses including dog & cat treats and toys, aquatics, grass seed and bird feed.

Culture

We believe our employees are part of our organization because they are passionate about the Pet and Garden industries, and they can learn and grow every day as they build a rewarding career at Central. Every member of Team Central and every job is important to our success and helping us to achieve our purpose. Over the course of the past year, we formalized our mentorship program, advanced our diversity & inclusion agenda, enhanced our training & development programs and improved engagement among senior leaders.

LOOKING AHEAD TO FISCAL 2023

Pet and Garden are resilient industries, even in recessionary times, and we remain confident in the fundamental trends that support their growth for years to come.

Given the uncertain economic environment, we are controlling what we can control. We are looking at simplifying our manufacturing network, rationalizing our overall footprint, leveraging our scale, and converting inventories into cash. In addition, we are deliberately pausing hiring and the filling of open salaried positions and are reducing travel expenses. While we focus even more on controlling cost and generating cash in the short term, we continue to invest in our Central to Home strategy, our framework to drive long-term profitable growth.

Our Company remains strong, well-capitalized and well-positioned to grow both organically and through acquisitions in the years ahead. 2023 will be challenging, and yet I'm convinced our team can navigate the short term while building for the long term.

Sincerely,

Tim Cofer

Chief Executive Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________

FORM 10-K

• ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 24, 2022

OR

• TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from ________ to ________
  Commission File Number 1-33268

Central Garden & Pet Company

	(Exact name of registrant as specified in its charter)
Delaware		68-0275553
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)
1340 Treat Boulevard, Suite 600, Walnut Creek, California 94597
	(Address of principal executive offices) (Zip Code)
	Telephone Number: [phone]
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	CENT	The Nasdaq Stock Market LLC
Class A Common Stock	CENTA	The Nasdaq Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.	Yes	☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.	Yes	☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer ☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At March 26, 2022, the aggregate market value of the registrant's Common Stock, Class A Common Stock and Class B Stock held by non-affiliates of the registrant was approximately $438.2 million, $1.7 billion and $86 thousand, respectively.

At November 11, 2022, the number of shares outstanding of the registrant's Common Stock was 11,266,889 and the number of shares outstanding of Class A Common Stock was 41,252,435. In addition, on such date, the registrant had outstanding 1,602,374 shares of its Class B Stock, which are convertible into Common Stock on a share-for-share basis.

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Company's 2023 Annual Meeting of Stockholders - Part III of this Form 10-K