Central Garden & Pet Co: Form 10-Q for the period ended Jun 28, 2025

Our Company

Central Garden & Pet Company (“Central”) is a market leader in the garden and pet industries in the United States. For over 40 years, Central has proudly nurtured happy and healthy homes by bringing innovative and trusted solutions to consumers and its customers. We manage our operations through two reportable segments: Pet and Garden.

Our Pet segment includes dog and cat supplies such as dog treats and chews, toys, pet beds and grooming products, waste management and training pads, pet containment; supplies for aquatics, small animals, reptiles and pet birds including toys, enclosures and habitats, bedding, food and supplements; products for equine and livestock, animal and household health and insect control products; live fish and small animals as well as outdoor cushions. These products are sold under brands such as Aqueon®, Cadet®, C&S®, Comfort Zone®, Farnam®, Four Paws®, Kaytee®, Nylabone® and Zilla®.

Our Garden segment includes lawn and garden consumables such as grass seed, vegetable, flower and herb packet seed; wild bird feed, bird houses and other birding accessories; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers and live plants. These products are sold under brands such as Amdro®, Ferry-Morse®, Pennington® and Sevin®.

In fiscal 2024, our consolidated net sales were $3.2 billion, of which our Pet segment, or Pet, accounted for approximately $1.8 billion and our Garden segment, or Garden, accounted for approximately $1.4 billion. In fiscal 2024, our operating income was $185 million consisting of income from our Pet segment of $203 million, income from our Garden segment of $82 million and corporate expenses of $100 million.

We were incorporated in Delaware in May 1992 as the successor to a California corporation that was formed in 1955. Our executive offices are located at 1340 Treat Boulevard, Suite 600, Walnut Creek, California 94597, and our telephone number is (925) 948-4000. Our website is www.central.com (http://www.central.com). The information on our website is not incorporated by reference in this quarterly report.

Recent Developments

Fiscal 2025 Third Quarter Financial Performance:

• Net sales decreased $35.4 million, or 3.6%, from the prior year quarter to $961 million, with Pet net sales decreasing 3.1% and Garden net sales decreasing 4.1%.
• Gross profit increased $15.0 million from the prior year quarter, and gross margin increased 280 basis points to 34.6%.
• Selling, general and administrative expense decreased $4.2 million from the prior year quarter to $196.9 million but increased as a percentage of net sales 30 basis points to 20.5%.
• Operating income increased $19.2 million, or 16.6%, from the prior year quarter to $135.1 million in the third quarter of fiscal 2025. On a non-GAAP basis, operating income increased $12.0 million from the prior year quarter.
• Net income in the third quarter of fiscal 2025 was $95.0 million, or $1.52 per diluted share, compared to $79.7 million, or $1.19 per diluted share, in the third quarter of fiscal 2024. On a non-GAAP basis, net income was $97.9 million, or $1.56 per diluted share, in the third quarter of fiscal 2025 compared to $88.2 million, or $1.32 per diluted share, in the third quarter of fiscal 2024.

Wind-down of U.K. Operations

In March 2025, we decided to wind-down our operations in the United Kingdom, which also served certain European markets, as we move to a direct-export model, and in the second quarter of fiscal 2025 incurred approximately $5.3 million of one-time costs, including $4.4 million in cost of goods sold and $0.9 million in selling, general and administrative expense. In the third quarter of fiscal 2025, we incurred approximately $1.7 million of incremental one-time costs, including $0.1 million in cost of goods sold and $1.6 million in selling, general and administrative expense. The amounts were primarily related to the liquidation of inventory and receivables, severance and legal costs. We expect to incur additional costs, including severance and facility closure costs, in the next two quarters of calendar 2025.

Facility Closures

During the second quarter of fiscal year 2025, we began the consolidation of two older distribution facilities in Ontario, California and Salt Lake City, Utah into a new modern facility in Salt Lake City, Utah, reflecting our ongoing network optimization initiative to achieve a simpler, more efficient distribution network. As a result, we incurred approximately $2.2 million, including $0.1 million in cost of goods sold and $2.1 million in selling, general and administrative expense, composed primarily of charges for lease and severance costs. We expect to incur additional costs related to this project in the following three quarters.

Tax Reform

On July 4, 2025, subsequent to the end of the third quarter of fiscal 2025, H.R. 1, commonly known as the “One Big Beautiful Bill Act” (the “OBBBA”), was enacted into law. The OBBBA contains numerous federal tax provisions including modifications to the capitalization of research and development expenses, limitations on deductions for interest expense, and accelerated fixed asset depreciation. We are currently evaluating the potential effects of the OBBBA on its consolidated financial statements.

Results of Operations

Three Months Ended June 28, 2025

Compared with Three Months Ended June 29, 2024

Net Sales

Net sales for the three months ended June 28, 2025, decreased $35.4 million, or 3.6%, to $960.9 million from $996.3 million for the three months ended June 29, 2024. Our branded product sales decreased $19.1 million, and sales of other manufacturers’ products decreased $16.3 million.

Pet net sales decreased $15.5 million, or 3.1%, to $492.5 million for the three months ended June 28, 2025, from $508.0 million for the three months ended June 29, 2024. The decline in net sales was due primarily to the continued decline in pet durable products, particularly in our outdoor cushion and pet bed business and aquatics business, and further by exiting lower-margin SKUs in durable products. This decline was partially offset by increased sales in our professional business and pet distribution business. Pet branded product sales decreased $18.1 million, and sales of other manufacturers' products increased $2.6 million.

Garden net sales decreased $19.9 million, or 4.1%, to $468.4 million for the three months ended June 28, 2025 from $488.3 million for the three months ended June 29, 2024. The decline in Garden net sales was due primarily to decreased sales of third-party products negatively impacted by the loss of distribution of two product lines in our garden distribution business and extended periods of cool and rainy weather, which impacted some seasonal categories, particularly in controls and live plants. The declines were partially offset by increased sales in our fertilizer business and packet seed business. Garden branded product sales decreased $1.0 million, and sales of other manufacturers' products decreased $18.9 million.

Gross Profit

Gross profit for the three months ended June 28, 2025 increased $14.9 million, or 4.7%, to $332.0 million from $317.1 million for the three months ended June 29, 2024. Gross margin increased 280 basis points to 34.6% for the three months ended June 28, 2025 from 31.8% for the three months ended June 29, 2024. The increase in gross profit and gross margin was driven by productivity gains resulting from our Cost and Simplicity program and a reduction in charges related to the closing of facilities in the current three-month period compared to the prior three-month period.

The garden segment drove the improvement in gross profit and both segments contributed to the improved gross margin. Garden was positively impacted by the cost reductions and efficiency gains resulting from the focus on right sizing the live plants business and Pet by significant productivity gains in our Dog & Cat treats and toys business.

On a non-GAAP basis, which excludes the impact of the charges for facility closures in the current period and costs to exit the pottery business in the prior period, non-GAAP gross profit increased $6.6 million and gross margin increased 190 basis points to 34.6% for the three months ended June 28, 2025, from 32.7% for the three months ended June 29, 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $4.2 million, or 2.1%, to $196.9 million for the three months ended June 28, 2025. As a percentage of net sales, selling, general and administrative expenses increased to 20.5% for the three months ended June 28, 2025, compared to 20.2% in the comparable prior year quarter due primarily to the decrease in net sales. Selling, general and administrative expenses decreased in both corporate and Garden, partially offset by an increase in Pet, as compared to the prior year quarter.

Selling and delivery expense decreased $2.9 million to $94.0 million for the three months ended June 28, 2025 as compared to $96.9 million in the prior year quarter. The decreased expense was in the Garden segment due primarily to lower marketing expense and merchandising expense, both impacted by lower headcount.

Warehouse and administrative expense decreased $1.3 million, or 1.3%, to $102.9 million for the three months ended June 28, 2025 from $104.2 million for the three months ended June 29, 2024. The decrease in warehouse and administrative expense was primarily at corporate and a minor decrease in Garden, partially offset by an increase in Pet. Corporate expense decreased $5.6 million due primarily to lower compensation expense related to reduced headcount and lower insurance costs. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resources, and information technology functions.

Operating Income

Operating income increased $19.2 million, or 16.6%, to $135.1 million for the three months ended June 28, 2025 from $115.9 million for the three months ended June 29, 2024. Our operating margin increased from 11.6% in the prior year quarter to 14.1% in the current year quarter. The increase in operating income was due to a 280 basis point increase in gross margin and a $4.2 million decrease in selling, general and administrative expense, partially offset by a $35.4 million decrease in net sales.

Pet operating income decreased $6.9 million, or 8.3%, to $76.2 million for the three months ended June 28, 2025 from $83.1 million for the three months ended June 29, 2024. Pet operating income decreased due to a $15.5 million decline in net sales and increased selling, general and administrative expense partially offset by improved gross margin.

Garden operating income increased $20.5 million to $83.0 million for the three months ended June 28, 2025 from $62.5 million for the three months ended June 29, 2024. Garden operating income increased due to an improved gross margin and lower selling, general and administrative expenses partially offset by lower net sales.

Corporate operating expense decreased $5.6 million, or 18.8%, to $24.1 million for the three months ended June 28, 2025 from $29.7 million for the three months ended June 29, 2024, due primarily to lower compensation expense related to reduced headcount and lower insurance costs.

Net Interest Expense

Net interest expense for the three months ended June 28, 2025 decreased $1.4 million, or 13.4%, to $8.8 million from $10.2 million for the three months ended June 29, 2024. The decrease in net interest expense was due to increased interest income resulting from higher cash balances during the current quarter. Debt outstanding on June 28, 2025 was $1,191.3 million compared to $1,189.7 million at June 29, 2024.

Other Income

Other income is comprised of income or losses from investments accounted for under the equity method of accounting and foreign currency exchange gains and losses. Other income increased $0.8 million to $1.1 million for the three months ended June 28, 2025. The increase in other income was due primarily to foreign currency gains in the current year quarter.

Income Taxes

Our effective income tax rate was 25.1% for the quarter ended June 28, 2025 and 24.0% for the quarter ended June 29, 2024. The increase in our effective income tax rate was due primarily to the non-deductibility for tax purposes of losses incurred in connection with the wind-down of our U.K. operations.

Net Income and Earnings Per Share

Net income in the third quarter of fiscal 2025 was $95.0 million, or $1.52 per diluted share, compared to $79.7 million, or $1.19 per diluted share, in the third quarter of fiscal 2024. On a non-GAAP basis, net income in the third quarter of fiscal 2025 was $97.9 million, or $1.56 per diluted share, compared to $88.2 million, or $1.32 per diluted share, in the third quarter of fiscal 2024.

Nine Months Ended June 28, 2025

Compared with Nine Months Ended June 29, 2024

Net Sales

Net sales for the nine months ended June 28, 2025 decreased $80 million, or 3.2%, to $2,451 million from $2,531 million for the nine months ended June 29, 2024. Our branded product sales decreased $42 million, and sales of other manufacturers’ products decreased $38 million.

Pet net sales decreased $24 million, or 1.7%, to $1,374 million for the nine months ended June 28, 2025. The decline in Pet net sales was due primarily to lower sales of durable items impacting outdoor cushions, pet beds and aquatics. Pet branded sales decreased $33 million, and sales of other manufacturers' products increased $9 million.

Garden net sales decreased $56 million, or 5.0%, to $1,077 million for the nine months ended June 28, 2025. The decline in Garden net sales was due primarily to decreased sales of third-party products negatively impacted by the loss of distribution of two product lines and extended periods of cool and rainy weather during the garden season, which impacted some seasonal categories. The declines were partially offset by increased sales in our wild bird feed business and fertilizer business. Garden branded sales decreased $9 million, and sales of other manufacturers’ products decreased $47 million.

Gross Profit

Gross profit for the nine months ended June 28, 2025, increased $26.0 million, or 3.4%, to $800.8 million from $774.8 million for the nine months ended June 29, 2024. Gross margin improved 210 basis points to 32.7% for the nine months ended June 28, 2025, from 30.6% for the nine months ended June 29, 2024.

Both the Garden and Pet segments contributed to the improved gross profit and gross margin, with Garden being the larger contributor. The improvements were driven by productivity gains resulting from our Cost and Simplicity program. Prior year initiatives under the program, including facility consolidations, productivity initiatives and the exit of lower margin businesses have positively impacted our gross margin in the current year. Secondarily, Garden was positively impacted by the cost reductions and efficiency gains resulting from the focus on SKU rationalization and production processes.

On a non-GAAP basis, which excludes the impact of the charges related to facility closures in fiscal 2025 and fiscal 2024, the winding down of our operations in the U.K. in fiscal 2025, and exiting the pottery business in fiscal 2024, gross profit for the nine months ended June 28, 2025 increased $19.6 million, or 2.5%, to $805.5 million from $785.9 million for the nine months ended June 29, 2024. Non-GAAP gross margin increased 180 basis points to 32.9% for the nine months ended June 28, 2025 from 31.1% for the nine months ended June 29, 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $12.6 million, or 2.3%, to $544.4 million for the nine months ended June 28, 2025 from $557.0 million for the nine months ended June 29, 2024. As a percentage of net sales, selling, general and administrative expenses increased to 22.2% for the nine months ended June 28, 2025 from 22.0% for the prior year nine-month period. Decreased selling, general and administrative expenses in both Garden and corporate were partially offset by increased expense in Pet.

Selling and delivery expense decreased $0.2 million, or 0.1%, to $248.4 million for the nine months ended June 28, 2025 from $248.6 million for the nine months ended June 29, 2024. The decrease in the Garden segment, due primarily to lower marketing and delivery expense, was partially offset by an increase in the Pet segment due to increased marketing expense, including promotional and digital marketing spend.

Warehouse and administrative expense decreased $12.4 million, or 4.0%, to $296.0 million for the nine months ended June 28, 2025 from $308.4 million for the nine months ended June 29, 2024. Decreased expense in corporate and Garden was partially offset by a small increase in Pet. The decrease in corporate was due primarily to lower insurance expense, partially offset by increased variable compensation, and the decrease in Garden was due primarily to cost reductions resulting from prior facility closures and the exit of lower margin business. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resources, and information technology functions.

Operating Income

Operating income increased $38.6 million, or 17.7%, to $256.4 million for the nine months ended June 28, 2025 from $217.8 million for the nine months ended June 29, 2024. Our operating margin increased to 10.5% for the nine months ended June 28, 2025 from 8.6% for the nine months ended June 29, 2024. Operating income increased due to a $26.0 million increase in gross profit driven by a 210 basis point improvement in gross margin, and a $12.6 million decrease in selling, general and administrative expense.

Pet operating income decreased $1.0 million, or 0.5%, to $188.1 million for the nine months ended June 28, 2025 from $189.1 million for the nine months ended June 29, 2024. Pet operating income decreased due to lower sales and higher selling, general and administrative expense, partially offset by an improved gross margin.

Garden operating income increased $33.4 million to $144.1 million for the nine months ended June 28, 2025 from $110.7 million for the nine months ended June 29, 2024. Garden operating income increased due to an increase in gross profit and gross margin and lower selling, general and administrative expenses.

Corporate operating expense decreased $6.2 million to $75.8 million in the current nine-month period from $82.0 million in the comparable fiscal 2024 period due primarily to decreased insurance and third-party expense partially offset by increased variable compensation.

Net Interest Expense

Net interest expense for the nine months ended June 28, 2025 decreased $5.5 million, or 17.4%, to $25.9 million from $31.4 million for the nine months ended June 29, 2024. The decrease in net interest expense was due to increased interest income resulting from higher cash balances during the current nine-month period. Debt outstanding as of June 28, 2025 was $1,191.3 million compared to $1,189.7 million as of June 29, 2024.

Other Income

Other income decreased $0.9 million to $0.1 million for the nine months ended June 28, 2025, from $1.0 million for the nine months ended June 29, 2024. The decrease in other income was due primarily to lower equity method earnings and foreign currency gains in the current nine-month period as compared to the prior year nine-month period.

Income Taxes

Our effective income tax rate was 24.4% for the nine-month period ended June 28, 2025 compared to 23.3% for the nine-month period ended June 29, 2024. The increase in our effective income tax rate was due primarily to the non-deductibility for tax purposes of losses incurred in connection with the wind-down of our U.K. operations.

Net Income and Earnings Per Share

Our net income for the nine months ended June 28, 2025 was $172.6 million, or $2.69 per diluted share, compared to $142.1 million, or $2.13 per diluted share, for the nine months ended June 29, 2024.

On a non-GAAP basis, net income for the nine-month period ended June 28, 2025 was $179.6 million or $2.79 per diluted share, compared to $154.7 million, or $2.31 per diluted share, for the nine-month period ended June 29, 2024.

Use of Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net income and diluted net income per share, non-GAAP operating income, and adjusted EBITDA. Management uses these non-GAAP financial measures that exclude the impact of specific items (described below) in making financial, operating and planning decisions and in evaluating our performance. Also, Management believes that these non-GAAP financial measures may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods. While Management believes that non-GAAP measures are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

Adjusted EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization and stock-based compensation expense (or operating income plus depreciation and amortization expense and stock-based compensation expense). Adjusted EBITDA further excludes charges related to facility closures. We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. Adjusted EBITDA is used by our management to perform such evaluations. Adjusted EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that adjusted EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present adjusted EBITDA when reporting their results. Other companies may calculate adjusted EBITDA differently and it may not be comparable.

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below.

Non-GAAP financial measures reflect adjustments based on the following items:

• Facility closures and business exit: we have excluded charges related to the closure of distribution and manufacturing facilities and our decisions to exit the businesses as they represent infrequent transactions that impact the comparability between operating periods. We believe these exclusions supplement the GAAP information with a measure that may be useful to investors in assessing the sustainability of our operating performance.
• Tax impact: adjustment represents the impact of the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income. The tax impact of the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful supplemental information to investors and management.

1. During the third quarter of fiscal 2025, we recognized incremental expense of $3.9 million in the consolidated statement of operations, $2.2 million in our Garden segment related to closing a distribution facility in Ontario, California and beginning the consolidation of our Western distribution network and an incremental $1.7 million in our Pet segment related to the previous quarter's decision to wind-down our operations in the U.K.

2. During the second quarter of fiscal 2025, we recognized incremental expense of $5.3 million in the consolidated statement of operations related to the decision to wind-down our operations in the U.K. and the related facility there as we move to a direct-export model.

3. During the third quarter of fiscal 2024, we recognized incremental expense of $11.1 million in the consolidated statement of operations from the decision to exit the pottery business, the closure of a live goods distribution facility in Delaware and the relocation of our grass seed research facility.

4. During the second quarter of fiscal 2024, we recognized incremental expense of $5.3 million in the consolidated statement of operations from the closure of a manufacturing facility in Chico, California, and the consolidation of our Southeast distribution network.

(in thousands, except per share amounts)

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26

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27

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28

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Inflation

Our revenues and margins are dependent on various economic factors, including fluctuating rates of inflation, energy costs, interest rates, currencies and consumer attitudes toward discretionary spending. Inflation moderated in fiscal 2024, and this has continued into fiscal 2025. We have benefited from lower cost inventory and significant productivity gains resulting in improved margins. The imposition of tariffs and a global trade war, however, could result in higher inflation as the year progresses.

Weather and Seasonality

Our sales of lawn and garden products are impacted by weather conditions in the different markets we serve. Our Garden segment’s business is highly seasonal. In fiscal 2024, approximately 66% of our Garden segment’s net sales and 59% of our total net sales occurred during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is typically generated in this period.

Liquidity and Capital Resources

We have financed our growth through a combination of cash generated from operations, bank borrowings, supplier credit, and sales of equity and debt securities.

Our business is seasonal, and our working capital requirements and capital resources track closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are substantially reduced through conversion of receivables to cash.

We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses have a year round selling cycle with a slight degree of seasonality. As a result, it is not necessary to maintain large quantities of inventory to meet peak demands. Our lawn and garden businesses are highly seasonal with approximately 66% of our Garden segment’s net sales occurring during the second and third fiscal quarters. This seasonality requires the shipment of large quantities of product well ahead of the peak consumer buying periods. To encourage retailers and distributors to stock large quantities of inventory, industry practice has been for manufacturers to give extended credit terms and/or promotional discounts.

Operating Activities

Net cash provided by operating activities decreased by $42.0 million, from $191.8 million for the nine months ended June 29, 2024, to $149.8 million for the nine months ended June 28, 2025. The decrease in cash provided by operating activities was due primarily to changes in our working capital accounts for the nine-month period ended June 28, 2025, primarily an increase in accounts receivable and a smaller decrease in inventory as compared to the prior year period.

Investing Activities

Net cash used in investing activities decreased $60.5 million, from $94.6 million for the nine months ended June 29, 2024 to $34.0 million during the nine months ended June 28, 2025. The decrease in cash used in investing activities was due primarily to more significant acquisition activity in the prior year as compared to the current year as well as decreased capital expenditures in the current year.

Financing Activities

Net cash used in financing activities increased $140.3 million, from $16.0 million for the nine months ended June 29, 2024, to $156.3 million for the nine months ended June 28, 2025. The increase in cash used in financing activities during the current year was due primarily to increased open market purchases of our common stock as compared to the prior year. During the nine months ended June 28, 2025, we repurchased approximately 3.2 million shares of our non-voting Class A common stock (CENTA) on the open market at an aggregate cost of approximately $98.2 million, or approximately $30.82 per share, and approximately 1.4 million shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $50.2 million, or approximately $35.23 per share. During the nine months ended June 29, 2024, we repurchased approximately 0.1 million shares of our non-voting Class A common stock (CENTA) on the open market at an aggregate cost of approximately $1.4 million, or approximately $28.75 per share.

We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $750 million Credit Facility. Based on our anticipated cash needs, availability under our Credit Facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.

We believe that cash flows from operating activities, funds available under our Credit Facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital and capital expenditure requirements for the foreseeable future. We anticipate that our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $50 to $60 million in fiscal 2025, of which we have invested approximately $31 million through June 28, 2025.

As part of our growth strategy, we have acquired a number of companies in the past, and we anticipate that we will continue to evaluate potential acquisition candidates in the future. If one or more potential acquisition opportunities, including those that would be material, become available in the near future, we may require additional external capital. In addition, such acquisitions would subject us to the general risks associated with acquiring companies, particularly if the acquisitions are relatively large.

Total Debt

At June 28, 2025, our total debt outstanding was $1,191.3 million, as compared with $1,189.7 million at June 29, 2024.

Senior Notes

$400 million 4.125% Senior Notes due 2031

In April 2021, we issued $400 million aggregate principal amount of 4.125% senior notes due April 2031 (the "2031 Notes"). We used a portion of the net proceeds from the offering to repay all outstanding borrowings under our Credit Facility, with the remainder used for general corporate purposes.

We incurred approximately $6.0 million of debt issuance costs in conjunction with this issuance, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2031 Notes.

The 2031 Notes require semiannual interest payments on April 30 and October 30. The 2031 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Credit Facility. The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the Securities Act of 1933.

We may redeem some or all of the 2031 Notes at any time, at our option, prior to April 30, 2026 at the principal amount plus a "make whole" premium. We may redeem some or all of the 2031 Notes at our option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.

The holders of the 2031 Notes have the right to require us to repurchase all or a portion of the 2031 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of a change of control.

The 2031 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of June 28, 2025.

$500 million 4.125% Senior Notes due 2030

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). We used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder used for general corporate purposes.

We incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.

The 2030 Notes require semiannual interest payments on October 15 and April 15. The 2030 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Credit Facility.

We may redeem some or all of the 2030 Notes at any time, at our option, prior to October 15, 2025 at a price equal to 100% of the principal amount plus a “make-whole” premium. We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

The holders of the 2030 Notes have the right to require us to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of June 28, 2025.

$300 Million 5.125% Senior Notes due 2028

In December 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). We used the net proceeds from the offering to finance acquisitions and for general corporate purposes.

We incurred approximately $4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.

The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our Credit Facility.

We may redeem some or all of the 2028 Notes at our option, through December 31, 2025 for 100.854% and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.

The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of June 28, 2025.

Asset-Based Loan Facility

On December 16, 2021, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400 million principal amount available with the consent of the Lenders, as defined, if we exercise the uncommitted accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 16, 2026. We may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.

The Credit Facility is subject to a borrowing base that is calculated using a formula based upon eligible receivables and inventory, and at our election, eligible real property, minus certain reserves. Proceeds of the Credit Facility will be used for general corporate purposes. Net availability under the Credit Facility was approximately $565 million as of June 28, 2025. The Credit Facility includes a $50 million sublimit for the issuance of standby and commercial letters of credit and a $75 million sublimit for swing loan borrowings. As of June 28, 2025, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. Outside of the Credit Facility, there were other standby and commercial letters of credit of $4.2 million outstanding as of June 28, 2025.

Borrowings under the Credit Facility bear interest at a rate based on SOFR (which will not be less than 0.00%) or, at our option, the Base Rate, plus, in either case, an applicable margin based on our usage under the Credit Facility. Base Rate is defined as the highest of (a) the Truist prime Bank rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month SOFR plus 1.00% and (d) 0.00%. The applicable margin for SOFR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of June 28, 2025, and the applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of June 28, 2025. An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Credit Facility. Standby letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of standby letters of credit are payable quarterly and a facing fee of 0.125% is payable quarterly for the stated amount of each letter of credit. We are also required to pay certain fees to the administrative agent under the Credit Facility. As of June 28, 2025, the interest rate applicable to Base Rate borrowings was 7.5%, and the interest rate applicable to one-month SOFR-based borrowings was 5.3%.

We incurred approximately $2.4 million of debt issuance costs in conjunction with this transaction, which included lender fees and legal expenses. The debt issuance costs are being amortized over the term of the Credit Facility.

The Credit Facility contains customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1:1 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions. We were in compliance with all financial covenants under the Credit Facility as of June 28, 2025.

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

Central (the "Parent/Issuer") issued $400 million of 2031 Notes in April 2021, $500 million of 2030 Notes in October 2020, and $300 million of 2028 Notes in December 2017. The 2031 Notes, 2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are guarantors of our Credit Facility. The 2031 Notes, 2030 Notes and 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Credit Facility, to the extent of the value of the collateral securing such indebtedness. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent/Issuer. Certain subsidiaries and operating divisions of the Company do not guarantee the 2031, 2030 or 2028 Notes and are referred to as the Non-Guarantors.

The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and interest on the 2031, 2030 and 2028 Notes when due, whether at stated maturity of the 2031, 2030 and 2028 Notes, by acceleration, call for redemption or otherwise, and all other obligations of the Company to the holders of the 2031, 2030 and 2028 Notes and to the trustee under the indenture governing the 2031, 2030 and 2028 Notes (the "Guarantee"). The Guarantees are senior unsecured obligations of each Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.

The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as well, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law.

The Guarantee of a Guarantor will be released:

(1) upon any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation), in accordance with the governing indentures, to any person other than the Company;

(2) if such Guarantor merges with and into the Company, with the Company surviving such merger;

(3) if the Guarantor is designated as an Unrestricted Subsidiary; or

(4) if the Company exercises its legal defeasance option or covenant defeasance option or the discharge of the Company's obligations under the indentures in accordance with the terms of the indentures.

The following tables present summarized financial information of the Parent/Issuer subsidiaries and the Guarantor subsidiaries. All intercompany balances and transactions between subsidiaries under Parent/Issuer and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Parent/Issuer's interests in the Guarantor Subsidiaries. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.

(in thousands)

(in thousands)

New Accounting Pronouncements

Refer to Footnote 1 in the notes to the condensed consolidated financial statements for new accounting pronouncements.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes to our critical accounting policies, estimates and assumptions or the judgments affecting the application of those accounting policies since our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

There has been no material change in our exposure to market risk from that discussed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, including our Principal Executive Officer and Principal Financial Officer, have reviewed, as of the end of the period covered by this report, the “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) that ensure that information relating to the Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported in a timely and proper manner and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon this review, such officers concluded that our disclosure controls and procedures were effective as of June 28, 2025.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, have evaluated whether any change in our internal control over financial reporting occurred during the third quarter of fiscal 2025. There were no changes in our internal control over financial reporting during the quarter ended June 28, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended September 28, 2024.