Well, good afternoon, everyone. Thank you very much for joining us here. So this is our second day of our 24th Annual Oppenheimer Consumer Growth and E-commerce Conference. I am Brian Nagel. I work as the Consumer Growth and E-commerce Analyst here at Oppenheimer. So I'm very pleased to have with us our next presenting company, Central Garden & Pet. It's a company that has participated in this event for a number of years, and I've had the pleasure of getting to know over the years as well. So, in presenting for Central Garden & Pet or participating in this, is the company's CFO, Niko Lahanas. So Niko, thank you for joining us. Thank you, Brian. Always great to be a part of this. So we're going to structure this as an informal fireside chat with me asking questions and Niko responding. To the extent there are any questions in the audience, just send them through the chat, and we'll be happy to work them into our conversation. So with that, Niko, for those who may be less familiar with Central Garden & Pet, can you start with an overview of the company? You know, how the structure of the company and then your core customers and how you go to market. You bet. Just as the name suggests, we're in the pet and garden business. If you look at the company, it's about 60% pet, 40% garden. The way we look at the business, it's kind of in three sort of segments. We've got a branded piece, which is about 65% of the company. We do 13% private label. And then we still have a third-party distribution business, which is about 22% of the company. And that's really a legacy business. That's how the company was sort of started. As you think about the business, you know, we have the two segments, pet and garden. And you know, the pet side is very fragmented, as a lot of folks know. You've got a lot of different dog foods, pet supply manufacturers, lots of customers. You've got the independent channel, Food, Drug, Mass. E-com is also very strong in pet with Amazon and Chewy as some of our bigger customers. So very fragmented space, good growth rates. If you look at the pet industry, it's really kind of historically, if I take out kind of the COVID bubble, it's grown about 2%-4% over the long haul. And then that also includes pet services. So you've got dog walking, dog sitting, veterinary. All of those things are encompassed in sort of that pet industry, which is approaching like $50 billion, or no, excuse me, $100 billion in total. And then you've got the garden side of the business, which is very different. It's very consolidated. You've got three large competitors. There's ourselves, there's Scotts, there's Spectrum. You've got three large customers in Home Depot, Lowe's, and Walmart. So very, very consolidated, hyper-competitive. I would say the growth rates are a little bit slower, more kind of with household income, kind of in that 0%-1%, 1.5%, 2%. Kind of less tailwinds, a little bit tied to housing. So you kind of see pickups in housing starts as well. And also had a nice lift during COVID. So both of our businesses were beneficiaries of sort of a COVID lift during the pandemic. And I think we're kind of finding our way back to what I would call sort of a more normalized sort of run rate. But that's kind of it in a nutshell. I would say also garden is a little bit less developed on E-com. So you see kind of pet being north of 30% exposure to e-com and garden being well under 10% right now, but growing quite rapidly. That's a great story. So you mentioned just as far from a consumer standpoint, I guess the question I'll ask is, where do consumers see your products? So you mentioned on the garden side, the home centers, The Home Depot, and Lowe's, and then also Walmart. And I think on the pet side, you mentioned maybe Amazon. But again, that just allows so who are your, as consumers, where do we see your products basically? Yeah, I mean, on the pet side, our largest customer is actually Costco. So we're in that club channel. We're online. On the pet side, it's also pet specialties. So Petco, PetSmart, some of the mom-and-pop sort of independent pet stores as well. And then, of course, Walmart on the pet side as well. So again, a lot more fragmented. We've got a fairly large pet distribution business that is around $500 million top line. And that distributes our products as well as third-party products into that independent channel, which is a tougher channel to get to because it's so fragmented. So as I've been working through our conference this year and talking to our clients, one of the big questions out there right now, one of the big unknowns, is just really the health of the consumer. So I'd love to, before we jump more into the specifics of Central Garden & Pet, given your unique position here, I mean, how do you view the health of the consumer? You mentioned a moment ago, there's still this, I guess, coming off of the outsized demand during the pandemic. I've seen that dynamic a lot. But I guess let me ask you the question. How do you see the health of the consumer? Kind of where are we now? From your perspective, where are we going? Yeah, I mean, we're really fortunate because both of our categories, meaning garden and pet, are relatively recession resistant. So when a consumer is under stress, they're going to continue to feed their pet. And they're probably going to continue to garden because it is, in the grand scheme of things, a fairly inexpensive hobby. For a few hundred bucks, you can go in, fill your shopping basket with lots of product to go beautify the backyard. And a lot of times they'll do that actually instead of going on a vacation. Now, all of that said, we have seen some, what I would say, value-seeking behavior by consumers. We see it in some of our higher-end dog treats where, I'll give an example of a bully stick, which you can buy at any club store or any specialty channel. They tend to be pretty expensive. Costco probably has the best value, and a pack would cost you around $40. We've come up with a bully alternative that looks, feels, tastes for the pet a lot like a bully stick. But we're selling that at a lower price point. And we've seen that really take off as the consumer has gone in and looked for more kind of value. And so we sort of hit the sweet spot there, and we've had some nice success. If you look at on the garden side, wild bird, very, very discretionary category. We've seen a real trade down from more premium mixes into kind of opening price points. So there is some value-seeking behavior. I would say, though, on the garden side, what we've seen is weather is actually a bigger determinant of sort of consumer engagement as opposed to price. So when weather is particularly bad, we're seeing footsteps down in the stores and less POS. When the weather is good, our POS does quite well. But again, you're seeing the consumer trade down a little bit. We haven't seen them go all the way down to private label. As I mentioned before, private label is around 13% of our business. I think total retail is around 22%. So we're a little under-indexed in private label. And we've still seen our brands actually grow better than private label. So we have seen that sort of resilience in the consumer. So the trade down you're talking about, you look back over time, does this remind you of a prior period? Or I would be surprised if it's unprecedented. But I guess if we're looking, I hear what you're saying. I've heard this similar to other companies. I mean, have you seen this before? And then generally, where does it lead to? Well, I'll tell you, what we saw pre-pandemic was a very strong move towards private label in a lot of our categories. Private label had real momentum. In fact, it was outgrowing a lot of the branded products out in pet and garden. Then the pandemic hit and kind of like flipped the script because people had more disposable income. I think they wanted, they were seeking quality, or at least the perception of quality, and wanted to be with brands that they really, really trusted. I think all of those things kind of happened during the pandemic. We're seeing it starting to shift. It wouldn't surprise me if, in short order, we ended up sort of at pre-pandemic levels where private label started to gain some momentum. Because in truth, and we do private label when it makes sense. The quality of private label, a lot of folks have upped the game. It used to be you had to take a real step down in quality. I don't think that's the case anymore. I think in a lot of instances, the private label brand is quite good. I know that because we make a lot of it. It is up to our quality standards as well. I think it's probably going to head in that direction, back to pre-pandemic levels. You're very helpful. So shifting over to be more specific now on Central Garden & Pet. So look, you've had a nice start to the year. Yeah. A nice start to the year. I guess the question I have, maybe you can talk about what's been driving that. Then what does that mean in your mind as we continue to progress through 2024? Yeah. I mean, to really look at the first half of the year, you got to almost step back and look at last year. Last year, we were going through the major destocking that a lot of the retailers were doing. So the first half was very, very soft. The weather wasn't particularly great. You had retailers that were full-on destocking. We were very soft first half. The comp was relatively easy. We expected to be coming out of the gates a little bit stronger this year. And we did, which was great. I think one of the areas that I would point out is we've done a really good job of taking cost out and expanding margins. If you look at our first half, we had some nice margin expansion. And that was a direct result of our low-cost producer initiatives, but also a moderating inflationary environment. So those two things really drove some margin expansion, as well as favorable product mix. We've got a wide variety array of products that have very, very different margin profiles. And first half of the year was very favorable to some of our higher margin businesses. So really felt good about the start. For us, we make a lot of money in those six months in the garden season. So really, we were a little less than halfway through the garden season. And Q3 is always a big quarter for us. So that's one of the reasons we were reluctant to take guide up. In fact, we had more of a wait-and-see attitude because the weather has been very, very choppy. On the East Coast, very wet, very cold. Things are now starting to feel a little bit more like spring and summer. But at the time, we took a more wait-and-see attitude. So it's an interesting point you bring about. So the retailers, your key distribution partners. So I just want to make sure we understand this well. So there was a destocking. But is it now back in balance? Are you seeing them now order from you consistent with what they're selling through? Yeah, I would say Q2, we were a little behind. So they were probably loading in a little heavier than the POS. Again, the weather wasn't great. But that's a lot of times what we've seen where they will load in. So I think this year we had more of a traditional load in and kind of waiting for that POS to kick in. And that usually happens with the good weather. I would say that no retailer is really over their skis in terms of inventory. So we sort of like where that's sitting right now. So there is a very nice balance as opposed to last year. Believe it or not, last year, from a POS standpoint, we had a record POS a year ago on the garden side. And yet our sales were down because it was literally just the retailers destocking all that inventory. We're seeing more balance this year, which is great to see. Just to clarify there, it seems like you're talking primarily about the garden side. Is this dynamic also true on the pet side? Pet had evened out about a year ago. We've seen a much more normalized, what I would say, order pattern on the pet side. That kind of normalized out last summer. It's been pretty consistent. Garden's been a lot more choppy. Got it. So I've had a number of companies, a number of the companies I either presented at our conference or companies I cover closely, talk about weather early this year and the choppiness of weather and the impact that's had upon their business. So you mentioned it here as well. So I guess the question I have is, as we look at, I don't know how we'd even perfectly describe the weather other than choppy early this year. Yeah. But for the dead of autumn, which it seems like now, it seems like looking at the data, we've gotten to a normal spring, heading toward what could be, what should be a normal summer. Do your sales catch up? Or could there potentially be lost sales in that dynamic? There's always lost sales, Brian. We always like to be optimistic and hope that they catch up. But the reality is they really don't. You kind of have that April, May season when it has to happen. You may claw back a little bit. But at the end of the day, you do lose some sales if the weather is poor during those months because what invariably happens is the temperatures go up on the East Coast. And in the South and Midwest, you start getting humidity creeping in. And people will stay indoors. They won't want to garden when it gets to be north of 85, 90 with humidity. So yeah, you typically do lose some sales. Got it. Now, shifting back, we talked a bit about private label already. But maybe let's explore that a little further. Just kind of where are you private label on both sides of your business? Where would the targets be? And as investors, how should we think about, from a financial standpoint, the continued growth in private label? Yeah. I mean, we're, again, total company, we're about 13%. If you look at the garden side, it's around 9%. And pet is around 16% private label. I think the way we view it is private label is a certainty. It's how retailers make money. And when we're the low-cost producer and we have capacity that's available, we're going to want to engage in that because it gives us more control of the shelf. So you can have your branded product and a private label product now facing the consumer. And you've got really good control of the shelf. So as long as we can make money and we are that low-cost producer and we can do it in an efficient manner, we will engage in private label. And it's a nice way to absorb overhead in our facilities. And it creates a real strong brand as well as a bond, what I mean, with the retailer. It makes you more meaningful to them. And you become a lot more strategic in a lot of ways. And it can take many different forms. I mean, we have situations where we're doing private label with a retailer. And we actually own the formula. We have patents on the formula. We own the packaging. And we can make it look and feel like a very premium-type product. And I think that's what they appreciate because we bring an expertise to the table there. So for Central Garden & Pet then, clearly, we're describing an incremental sales opportunity. But then also, I assume the margin profile is higher on private label than branded, correct? Well, the gross margin can be usually less on private label. As you get down to operating margin, if you are the low-cost producer, it can be comparable because you're not going to spend a lot of selling and marketing sort of demand creation on private label. That's sort of the retailer's job because it's their brand. So if you are the low-cost producer, you have very little SG&A going against the private label product. But overall, the gross margins tend to be a little bit lower because it's just not going to command as high of a margin as a branded product. So I hear what you're saying. So you have this more complete offering going to your retail partners and makes Central Garden & Pet a, I assume, a more valued type of supplier. So going back to one of the questions we discussed earlier, just who are your distribution partners? I mean, as you look at this now, are there key partners that you're really sort of fighting to get into or almost missing pieces within the distribution infrastructure for Central Garden & Pet? There are some customers that are growing really fast that we would love to grow even faster with. I would call out like a Tractor Supply. We're in that customer in both pet and garden. But they're doing an extremely good job. We would love to be a bigger part of their business kind of in that farm ag sort of channel. I would say we're probably a little underrepresented there. So that would be a key customer. But they are growing like a weed with us right now. And we're participating in that. I would say I always want to grow faster in e-com because that is our fastest overall growing channel. And I think we can do better there as well. And we've had a lot of success. We are growing share in e-com in both pet and garden. But I would love to see us be even bigger in that channel as well. So when you talk about e-comm, is that retailers such as Tractor Supply or even Home Depot and Lowe's that are clearly primarily a physical business but then have an e-commerce operation or the pure-play e-commerce companies like an Amazon? Yeah. When I'm talking e-comm, I'm really talking about Amazon and Chewy. But then also HomeDepot.com, kind of omnichannel, Walmart.com, things like that. We not only sell product there, but we also fulfill. And so there's a really nice kind of a symbiotic relationship there where in many cases, we'll be doing fulfillment in our warehouses. And that's one of the reasons we bought DMO, which is an acquisition we did in 2021, DoMyOwn, which is a pure-play e-com business. And we bought that because we love the business. But we also realized they had some great capabilities around pick, pack, ship. They had some great software that we're now distributing across our org to make us more efficient in terms of fulfillment and our overall e-com capabilities. Let me discuss that a little bit more. I mean, so again, it's no secret, right? This shift has been happening for a while where more and more sales are going to be online, right? That's nothing new. But I guess the question I have for you is, as we've watched this shift continue to happen, has that been generally a positive or more of a challenge for a company like Central Garden & Pet? I mean, it's been a little bit of both. What we've done really well is we've been very selective in terms of what we get the question a lot of, is it dilutive to earnings? Because a lot of companies, it is dilutive to earnings to sell on e-comm. And my answer is always the same, which is no. But it's intentional because we are very selective in terms of what products we will sell online. We want to make money. We want the e-tailer to make money. So we will select products that have the right price pack architecture. We want to sell products that are higher price point, lower cube, that ship well so everyone can make money. You're not going to ship a 30-pound bag of wild bird food that is opening price point. No one's going to do well there. That's something where the consumer is going to have to go to the store and pick that up. So we're very intentional about what we put online. And then the other piece was the more challenging piece was we needed to get better at fulfillment because that's the other piece of this, which is the not-so-sexy side of it where you have to have a very efficient system in-house where you can pick, pack, and ship eaches in a very efficient way where you can continue to make money. And I think that was a challenge. And that's where we needed a little bit of help where we went out and we bought DoMyOwn, which they've been doing it for years and had created their own proprietary not only software but business process in terms of shipping eaches out in a profitable manner. So are those processes now built out? Or do you foresee further investment, potentially further acquisitions? We feel good about where we are. We need to distribute those processes out into more kind of ship points. Right now, we have it in about three different points in our network. But we would need to distribute the capability further out so that we had more ship points that are efficient and cost-effective. So just to level set on this point, again, this may not be the perfect comparison, but the value add for a Central Garden & Pet to a company like Home Depot and Home Depot stores versus that into Amazon, how is that different? Is there a significant difference in the value add that the value Central Garden & Pet adds to those two types of companies? Well, it all depends. I mean, if you're shipping one piece to Amazon, then it's just a buy-sell kind of relationship. I would say we probably add, if we're talking e-comm, we probably add more value to a Home Depot because we can really be kind of arms and legs to what they're doing. We do ship a lot of third-party product there. So we can help them with their endless aisle and create extra ship points for them. Whereas Amazon's network is probably a little bit more developed, a little more sophisticated as far as shipping eaches to consumers. So we're not adding a ton for them. But I would say for Home Depot, we probably do add significant value there. Right. Just shifting over maybe a bit to pet. I mean, one of the dynamics we're seeing, again, we mentioned there was a few moments ago this kind of post-pandemic dynamic. Pet adoption soared through the pandemic, right? And now it's moderated. So are you seeing that? And then how is that, if that's actually occurring, how is that affecting your business? Yeah. So what we've seen there is if you look at the different pet categories, so you've got dog. And dog, to your point, went absolutely bananas during the pandemic. I mean, you couldn't find a puppy to adopt. I knew friends of mine that were driving through several states just to pick up a puppy during the pandemic. We're seeing now that the shelters are filling up. The household penetration is lower for dog, I would say for cat. And then if you look at the other category, which could include small animal, fish, bird, reptile, those household penetration rates are stable to up. But dog has really dropped off. And what we've seen is as folks have lost their dogs, dogs have passed, they've not gone in and bought a new dog or gotten a new dog, adopted a new dog. So we've seen that sort of drop off. I think that's really a function of consumer preferences. I think that people are probably wanting to do a little bit more travel. Then maybe they'll go back and get that puppy or that dog. Particularly the older cohort, we've seen older folks, boomers, when they lose their dog, they're not so quick to go back and replace that dog. So I think dogs, that category has taken the biggest hit. You've probably heard on earnings calls, durables also has taken a hit. Those really co-vary with pet adoption, right? So when you buy a dog, you're going to get an enclosure. You're going to buy a bowl, a leash, a collar, maybe even some Wee-Wee Pads. Those categories have sort of taken a hit. If we look at the consumables, they've remained really resilient. If we look at our dog and cat consumables category, that has continued to grow, grew like a rocket ship during the pandemic and has really continued to trend nicely even afterwards. This may be a silly question, but as a pet lover and an owner of various different kinds of pets, I mean, I would assume dogs are a much bigger driver of your business than the other animals you mentioned, correct? Yeah. I mean, it's a big part of our business. Although we are sort of the number 1, 2 or 3 player in pet, bird, small animal, reptile, we're in there as well. So we tend to do well in these sort of niche-y categories. But yeah, I think it's very fair to say that dog and cat is probably our biggest category if you look at it in the aggregate. It's also the most resilient category. It really has really been the most resilient during the pandemic and even after. So it's really where you want to be. Then this shifting over to garden, a similar type question. So again, one of the dynamics that happened, I think, through the pandemic was a larger number of people got into gardening. Gardening is a hobby. We talked a bit about just this normalization post-pandemic. But I guess the question I have for you is, in your data, are you seeing this now larger population having gardening as a hobby and this driving your business? Yeah. So what's interesting, what's happened with lawn and garden, if I look at it in the aggregate, the category is still higher than pre-pandemic. So if you look at 2019 and 2020, we're still higher. But we're not as high as we were in 2021 and 2022. So there's been a little bit of a drop-off. I think that's the travel component, right, where people have not had to shelter in place and they've decided to really go out and travel, maybe go out to dinner more. So we've seen a little bit of a give back from 2021, 2022, a little bit in 2023. But we're still higher than we were back in 2019. In fact, this is not a perfect science. If I look at your outlook for garden, it seems to be, correct me if I'm wrong, potentially a little more downbeat than what I hear from others. I guess that would be the first question. Then if that is correct, maybe explain why. Well, I would say we're a little more cautious than a lot of others. We had two kind of what I would call subpar garden seasons in a row. We try to go into every year being as balanced as we can and to some extent optimistic where you want to plan for a normal garden year. But what I would say is I don't know whether it's global warming, but the weather has become increasingly more volatile. We've seen colder, more wet weather on the East Coast and the Southeast. We've seen extreme weather in Texas, which is a massive market. So if you go back just a month or two, you had massive flooding in the Houston area. And now you're starting to see some heat come into Texas. So it's really been the weather that has been pretty nutty for us. So we had two kind of subpar weather seasons. And again, when the weather's good, the POS rocks. I mean, we've seen really great POS when the weather's good. So I would say we went into this year with a cautious optimism, maybe a little more cautious than we normally do just because we had two bad years in a row. And I think we're just erring on the side of caution at the end of the day. I got it. So our time is winding down. I guess my final question, just maybe on this much more on the financial side, Niko. So you've had this cost and simplicity program that you've implemented. Maybe talk about that and kind of are there additional initiatives on that front that you expect to tackle here? Oh, yeah. I mean, we're still, what I would say, early innings in cost and simplicity. I think what's great about this is we've seen some of the benefits and the rewards. We've seen some nice margin expansion. We're simplifying the business. If you look at a year ago, we sold off our garden distribution business to the independent channel. That was 5,000 SKUs right off the bat to a lot of customers. So we just took out a ton of complexity, low margin. And that frees up management to really focus on things that matter. Another example on the pet side was we got out of a big private label, low margin dog bed business. It was a ton of volume with very low payoff. By getting out of that, we were able to close two facilities. And we've now integrated that into our outdoor cushion business because that's effectively the same concept where you're taking ticks and you're filling them with foam or whatever you fill them with. And it's counter-seasonal. So our cushion business is big in the spring. Our dog bedding business is big in the winter. So those are things where we can really affect the portfolio, affect profitability, become a leaner, smarter company. And I think we're early on in that. We've got a long way to go. On the last call, we talked about taking four facilities and shutting them down and putting them into a big facility in Covington, Georgia. That's another example of where we're just getting better. That's going to be a much more efficient distribution facility. It's got state-of-the-art doors, many more doors, higher ceilings. So we're able to stage and move freight much quicker and get product to our customers. So it's pretty exciting. We're still early on in the journey. I think it's one of the things where you grow through acquisition and you slowly integrate. You end up with a lot of opportunity as we really begin to integrate some of these businesses. Well, perfect. Well, so is there anything we did not discuss that we should have here? No, I think you covered all the high notes. So great discussion, great questions. Thank you. Well, we once again appreciate your attendance at our conference. Best of luck here. Thank you very much. Appreciate it. Thank you, Brian. Have a good one. You too.