CENT - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's Fiscal 2025 Third Quarter Earnings Call. My name is Julian Bell, and I'll be your conference operator for today. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call over to Friederike Edelmann, Vice President, Investor Relations. Thank you. Please proceed.

Good afternoon, everyone, and thank you for joining Central's third quarter fiscal 2025 earnings call. Joining me today are Niko Lahanas, Chief Executive Officer; Brad Smith, Chief Financial Officer; John Hanson, President of Pet Consumer Products; and J.D. Walker, President of Garden Consumer Products. Niko will start by sharing today's key takeaways, followed by Brad, who will provide a more in-depth discussion of our results. After their prepared remarks, J.D. and John will join us for the Q&A session. Before we begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements expressed or implied today. A detailed description of Central's risk factors can be found in our Annual Report filed with the SEC. Please note that, Central undertakes no obligation to publicly update forward-looking statements to reflect new information, future events or other developments. Our press release and related materials, including GAAP reconciliation for the non-GAAP measures discussed on this call are available at ir.central.com. Last, but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any questions after the call, or at any time during the quarter, please don't hesitate to contact me directly. And with that, let's get started. Niko?

Thank you, Friederike, and good afternoon, everyone. Let me begin by sharing 3 key takeaways from today's call. First, we delivered a solid third quarter, driven by strong cross-functional collaboration, disciplined execution and the unwavering dedication of team Central across all business units. We advanced our operational optimization efforts, consolidating our footprint, refining our portfolio and improving our cost structure, setting the stage for long-term growth. And third, we remain confident in our full year outlook, even as we navigate a complex and fluid macroeconomic environment. Now, let me expand on these points. First, our third quarter achievements. Our team's strong execution led to record Q3 and year- to-date GAAP and non-GAAP earnings per share, significant margin expansion and a major improvement in workplace safety performance within the company. We achieved these results despite extended cool and rainy weather that negatively impacted the garden season, as well as top line pressure from the recent loss of 2 product lines in our third-party garden distribution business and ongoing assortment rationalization and soft demand in pet durables. These outcomes reflect the dedication, teamwork and cross- business collaboration across our more than 6,000 employees. Their collective efforts continue to drive our success and pave the way for an even stronger future. Second, progress in our Cost and Simplicity program. Our Cost and Simplicity program continues to deliver measurable impact. Highlights from the third quarter include e-commerce expansion. We are excited about our progress in consolidating 2 outdated distribution centers into a new modern direct-to-consumer enabled facility in Salt Lake City, Utah, which is scheduled to start shipping next month. Footprint optimization. We recently completed the sale of our U.K. operations' aquatic brands to Sara Group, and transitioned our U.S. Pet brands to a direct export model to serve U.K. and select European markets directly from the United States. Streamlining operations. With the consolidation of 20 outdated locations and the creation of 5 efficient DTC-enabled hubs, we've reached a major milestone in our simplification and e-commerce expansion efforts. Strengthened operations. In our Live Plants business, which operates within a relatively short selling season, we recently streamlined our assortment, exited unprofitable markets and restructured operations to enhance efficiency. These actions contributed to significantly improved operating results in the third quarter, despite challenging weather conditions. These initiatives enhance our operational efficiency, unlock organic growth potential and support our commitments to environmental stewardship and corporate responsibility. As part of that commitment, we're proud to highlight a recent collaboration between several of our business units and teams to support animal welfare organizations, assisting communities impacted by the flooding in Kirk County, Texas. Our contributions included essential pet supplies, such as dog beds, training pads and treats, as well as a cash donation to Greater Good Charities and the Hill Country Humane Society. Third, confidence in our outlook for the fiscal year. We posted record third quarter and year-to-date results, outpacing the prior year. As we look to the fourth quarter, recent tariff developments and escalated geopolitical tensions have heightened macroeconomic uncertainty and put additional pressure on consumer confidence. We continue to anticipate increased consumer value consciousness, heightened promotional activity across retail channels and ongoing pressure in the pet specialty brick-and-mortar space. Internally, we expect tariff related inflationary pressures to intensify, especially in our Pet segment. Nevertheless, we are reaffirming our fiscal 2025 non-GAAP EPS guidance of approximately $2.60. This outlook excludes potential impacts from acquisitions, divestitures or restructuring initiatives that may arise in Q4, including actions related to our ongoing Cost and Simplicity program. As Brad and I approach our 1-year milestone in our roles, we remain confident that our Central to Home strategy is not only the right one, but the foundation for long-term success. We see our unique opportunity and responsibility of blending the agility of a start-up with the scale of a large enterprise, empowering our teams to act locally, test quickly and scale winning ideas. At the same time, we leverage Central's scale to accelerate innovation and market share growth. By breaking down silos and sharing tools, data and talent across our organization, we create a powerful advantage that will compound over time. Looking ahead, we remain focused on disciplined cost and cash management, while making targeted investments to drive organic growth, especially in e-commerce, digital technology and innovation. While innovation is still an emerging capability for us, we're encouraged by the early momentum we're seeing from several recent launches. These include

Thank you, Niko. Expanding on Niko's key takeaways, I'll share an overview of our third quarter results, including the performance of our 2 segments. Now, let's start with our third quarter performance. Net sales were $961 million, a decline of 4%. Gross profit of $332 million increased 5%, while gross margin expanded by 280 basis points to 34.6%. Margin improvement was driven primarily by the successful execution of our Cost and Simplicity program. The impact on tariffs on our third quarter results was relatively limited, thanks to adequate pre-tariff inventory levels. SG&A expense of $197 million was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales, SG&A as a percentage of net sales increased by 30 basis points to 24.5%. Non-GAAP operating income increased 9% to $139 million, and non-GAAP operating margin expanded by 170 basis points to 14.5%. Non-GAAP adjustments in the Garden segment are related to the consolidation of 2 older distribution facilities in Ontario, California and Salt Lake City, Utah into a larger modern facility in Salt Lake City. As a result, we incurred a charge of $2.2 million, most of which is in SG&A. In the Pet segment, non-GAAP adjustments are related to the strategic wind down of our U.K. operations and moving to a direct export-only model, a Cost and Simplicity initiative we launched in the second quarter. As a result, we incurred an additional charge of $1.7 million, again, most of which was in SG&A. Below the line, net interest expense was $9 million compared to $10 million in the prior year, driven by higher interest income as a result of larger cash balances. Other income was $1.1 million compared to $225,000 a year ago. Non-GAAP net income totaled $98 million, an increase of 11%. We delivered GAAP earnings per share of $1.52, an increase of 28%. Non-GAAP EPS rose 18% to $1.56. These record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business. Adjusted EBITDA was $167 million, an increase of $11 million. Our tax rate for the quarter was 25.1%. Now, I'll provide highlights from our 2 segments, starting with Pet. Net sales for the Pet segment totaled $493 million, down 3%. This was primarily due to our strategic decision to exit lower margin durable products and customers. We accelerated this move at the end of last fiscal year in response to softer demand, heightened pricing pressure and the onset of new tariffs this year. These headwinds were partially offset by growth in our Professional and Pet distribution businesses. Consumable sales remained stable, while durables declined by double digits. Overall point of sale or POS trends were in line with shipments. Importantly, consumables now represent 82% of total Pet sales, up from 79% a year ago. This marks a significant increase from approximately 65%, 4 years ago, underscoring our success in building out a higher margin, more resilient consumables portfolio, while thoughtfully reducing our exposure to durables. We held market share overall and delivered gains in several key consumer categories such as Dog Chews, Flea & Tick and Pet Bird as well as in our Professional portfolio. E-commerce remained an important part of our channel mix, accounting for 27% of total Pet sales, consistent with the prior quarter, albeit slightly below the same period last year. Non-GAAP operating income for the segment came in at $78 million, down 6% compared to a record third quarter last year. Non-GAAP operating margin contracted by 60 basis points to 15.8%, largely due to lower volume. Lastly, Pet segment adjusted EBITDA totaled $88 million, reflecting a $6 million decline year-over-year. Now, moving to Garden. Net sales for the Garden segment were $468 million, representing a 4% decline. This was primarily driven by the exit of 2 product lines in our Garden third-party distribution business following ownership changes. Additional pressure came from extended periods of cool and rainy weather, which impacted seasonal categories such as Controls and Live Plants. These headwinds were partially offset by continued momentum in our Wild Bird, Fertilizer and Packet Seeds businesses, each delivering strong broad-based performance across channels. While overall shipments declined, overall POS grew in the low single digits for the quarter and consequently year-to-date despite the headwinds noted earlier. In aggregate, we grew share with gains in several categories, including Wild Bird, Grass Seed, Packet Seeds and Fertilizer. Our Garden e-commerce channel continued to gain momentum, achieving yet another quarter of double-digit growth. Results were especially strong in Wild Bird and Grass Seed with sustained category leadership and robust growth across both pure play and omnichannel partners. Non-GAAP operating income for Garden rose to $85 million, up $12 million. Non-GAAP operating margin expanded by 310 basis points to 18.2%, reflecting solid productivity gains. Adjusted EBITDA for the segment was $96 million, an improvement of $11 million year-over-year. Let me now address the balance sheet and cash flows. Cash provided by operations was $265 million for the quarter versus $286 million a year ago. Our continued emphasis on working capital management resulted in an additional $67 million reduction in inventory during the third quarter, spanning both segments of our business. CapEx for the quarter was $14 million, in line with the prior year, reflecting disciplined investments primarily in productivity enhancing initiatives and essential maintenance projects. Depreciation and amortization of $21 million was 5% below the prior year. During the quarter, we repurchased approximately 1.7 million shares or $55 million of our stock. As of the quarter end, $46 million remained authorized under the share repurchase program. Cash and cash equivalents at the end of the third quarter were $713 million, an increase of $143 million. Total debt of $1.2 billion was in line with the prior year. We ended the quarter with a gross leverage ratio of 2.9x, in line with the prior year and below our target range of 3 to 3.5x. Factoring in our strong cash position, our net leverage ratio was around 1.2x. We continue to have no borrowings under our $750 million credit facility. Turning to our fiscal '25 outlook. As Niko pointed out, we are reaffirming our guidance for non-GAAP EPS of approximately $2.60 a share for the full fiscal year. And with that, we'd like to open the line for questions.

[Operator Instructions] And our first question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Niko, my first question for you was around the strong profitability and the momentum that you've had in the Cost and Simplicity program. And I was wondering how investors should think about the opportunity to keep improving margins in what's been a difficult environment should that persist? And then if we think about a recovery, where you think perhaps margins might be able to go for the company?

Sure. Well, what I would say is the company has done just an excellent job around Cost and Simplicity. We've been at this for some time. And I think it's really been ingrained here, and everyone is on board and looking for ways to take cost out. I think there's also the simplification piece of this, which we think about every day, how do we simplify the company. The company has really grown through acquisition. So, with that comes a lot of complexity. We have like 24 BUs out there that really operate independently to a large degree. We give a lot of autonomy to our BUs, that's sort of part of our secret sauce. But with that comes complexity. So, we're constantly looking to simplify the business, both from logistics, from procurement in a lot of different areas. So that's ongoing. I think, we've made a lot of progress. We feel great about our distribution centers. As we mentioned in the prepared remarks, we've accomplished a lot of rationalization there. So, we feel great about that. I think there's other areas where we can continue to improve margins, and that's around portfolio optimization, SKU rat. We're going to continue to take cost out. We still have a ways to go there. And then there's also innovation, which we touched on as well, where we can really start ramping up that innovation muscle, similar to what we've done with Cost and Simplicity. And of course, you always want to innovate with, first of all, great products, but you want them to be margin accretive. So, we feel like we can influence margin in a lot of different ways. Lastly, you're going to be disappointed with the answer, but we don't give a target. We keep it open ended on margin, and we just come at it from a continuous improvement mindset.

Niko, one thing I'd add to that, you said that we've made great progress on Cost and Simplicity, and we have. But we still have a lot of runway still in front of us. There's still a lot of opportunity for further consolidation, simplification, which should lead to margin enhancement.

Yes. And the work is really never done here, because we do intend to acquire more businesses, and those will have to be integrated. And we're really building that muscle as well. So we go into acquisitions, knowing exactly where they're going to fit. And in many cases, it's into one of our platforms. I think a great example is the TDBBS acquisition we did over a year ago. That fits squarely into our Dog and Cat platform, and that's an extremely well run business that will up the game of that company in a very big way, and we're excited to see that down the road.

That's really helpful. Well, knowing that you're probably not going to give us too many numbers behind all this, just to ask maybe a more near-term question on margins and thinking about the tariff implications. Brad, I think you mentioned this quarter benefit from having inventory that had not been exposed to tariffs. Wondering if you could just share with us a little bit more about how to think about the timing of incremental inventory flowing through, what the implications for margins might be and how much you've needed to push through in price to customers?

Yes. So, we're expecting most of the hit to really start to surface in Q4. We are working on pricing actions right now. It's obviously a very challenging market. And so, we would expect some bumpiness along the way in terms of taking pricing. But we are looking at doing that where we can't fully mitigate cost increases through other measures. We're not going to give a number on pricing impact. What I can tell you is that, the expectation is, first of all, a couple of things. First of all, we are already -- though most of the benefit that we're going to accrue from all the work that we're doing to change sourcing destinations, SKU rat and whatnot are really going to bear fruit next year. We're already starting to see benefits through, for example, our China distribution, our China sourcing where we've actually reduced purchases by almost 50% in Q3, year-over-year, which is significant for us. That was our largest country in terms of tariffable imports. So, we've already done quite a bit to take exposure out of China through sourcing elsewhere through SKU rat and whatnot. We're going to -- and we'll continue to see benefits through our broader initiatives really bear fruit mostly next year. Our expectation is that bleeding through pre-tariff inventory and considering that most of the pricing benefits won't kick in until next year, we're probably going to end up running around roughly $10 million this year in terms of total tariff impact with the bulk of that hitting in Q4.

And our next question comes from the line of Bill Chappell with Truist Securities.

This is David Holcomb on for Bill Chappell. Just wondering if you could maybe share a little bit on Pet trends, both for like the category and for your business and if they're -- as we head into the end of the year and if things are kind of unfolding as you all had been expecting?

Yes, I can take that. This is John. We certainly have a challenged consumer out there, and we have a challenged customer base with Pet Specialty relative to traffic. Now, the good news is we're seeing pet ownership stabilizing in our Live Animal business, which we've got a Live Animal business, and that is stabilizing as well. That said, our Consumable business at Central, we were lapping a record top and bottom line Q3 a year ago. Our Consumable business is flat, and our Durable business really is declining. Brad mentioned double digits. There's 2 pieces of that. One is category softness. So, we're still seeing durables kind of in that mid to high single digit declines. And the second piece of that is our assortment rationalization. And we've been proactive about that. It's low margin SKUs. But as tariffs kind of come into play here, it's something we have to continue to look at. And we're going to have a little bit of time within Central to lap that. Brad mentioned, we started in Q4, but it's been an ongoing process through this year. But we're also 82% consumable now and 18% durable, and we feel really good about that mix.

Yes. And our consumables also tend to be higher margin. So that's had an effect on our margins as well as that durable piece shrinks. It's actually accretive to our business, which in a weird way is good. So, there is that.

Appreciate the color there. And could you may be like elaborate a little bit on if there were any particular categories for Garden that drove EPS upside?

Yes. This is J.D., David. I would say that, the categories that have driven our business overall this year in what was a challenging year from a weather standpoint. We had certain categories, certain business units that delivered extremely well. And I'd say that Wild Bird food has been a driver this year for us, our Fertilizer business, which is primarily private label contracts that we picked up this year as well as Grass Seed, very strong consumption for the Grass Seed category and our Packet Seeds business. Those categories would be the strongest producers for us this year.

I would pile on to what J.D. said. We talked about the live goods business, which was really challenged a year ago. And in the prepared remarks, we talked about the change there. And the team there has just done an incredible job of improving the operational efficiency there, taking cost out, SKU rat, all the right things they could be doing. The business is still not where we want it to be, but just a huge improvement year-over-year there. And the weather was actually probably worse this year for live goods during that sort of contracted season that they have. It's really 3 months and even maybe even less than that. So big shout out to them, did a really fantastic job there of improving that business.

And our next question comes from the line of Jim Chartier with Monness, Crespi & Hardt.

Could you quantify the impact of the exited product lines on third quarter and year-to-date sales for both Pet and Garden?

I don't think we've got those numbers in front of us.

I don't think we do.

We could probably follow up with you on that.

That's right.

I mean with --

What I would say on the Pet side, it was significant, right? So, the assortment rationalization we did on Pet, we said that was a big driver and the categories are soft in durables. The assortment rationalization was a bigger impact than the category decline.

I mean on the Pet side, I mean, durables was substantially all of the decline.

…all of the decline.

Simple math, that would be as good a number as any.

Yes. That's fair.

A lot of that was in aquatics. Yes.

And it's hard to quantify on the Garden side as well. And live goods, Niko was just talking about the team there has done a nice job. We exited some unprofitable markets, some unprofitable SKUs, but again, I can't quantify it at this point in time. And then the Pottery business, which we signaled that exit over a year ago. By the end of this year, we'll be working through the residual inventory there, and we'll be out of that category altogether.

And then the vendor partner.

Yes, exactly. Right. Those 2 were. Yes.

I mean, what everyone is summing up here, though, what I would say is we're not losing high margin businesses here. These are very intentional moves. The vendor partner piece was not within our control. But again, that's a distribution business that tends to be lower margin. The tanks and aquatics is a little bit lower margin. And then Pottery is also a high energy, what I would say, high energy, low margin business. So, we're not shedding a ton of tears on those types of losses in terms of volume.

And I think you can see that in the P&L, right? Yes. Top line pressure but gross margin has improved nicely, and it's flowing through to operating margin as well.

And when you get into Q4, we'll be -- that will be the first quarter where Enerpet, the business that we sold is out of the mix. And so there will be no revenues flowing in related to that business. So that is going to be a meaningful impact for Q4, but only from a top line perspective.

Okay. I'm just trying to understand is the underlying trend for sales closer to flat for the company if you exclude kind of the intentional exits?

I don't know if it's flat. We'd have to get back to you on that.

Okay. And then on the new e-commerce facility, does that add any revenue enhancing capabilities to you?

I don't know if it's incremental in any way. It gives us a greater amount of flexibility, improves our service levels. does a lot for us, simplifies our logistics footprint. It's very similar to what we did in Covington, Georgia, where we folded a bunch of facilities into a more modern type facility. So, I think the way we think about it is it's really more of a cost out initiative as opposed to incrementality. But a lot of times, when you become more efficient and fill rates go up, it could lead to a little bit of a lift in sales.

I think from a service standpoint, we'll be covering over 95% of the country in less than 2 days. So, from that standpoint, I think it will be a benefit.

Yes.

And our next question comes from the line of Bob Labick with CJS Securities.

On the Garden side, I believe you won some private label business here. I was just hoping you could give us a sense of how much of an impact from that win was this year? Should that carry over and drive incremental sales next year? Or is it like fully into this year? And likewise, on the third -- the product lines that you exited from sale, is that all like out this year and no hangover next year? Or is there still some loss next year in Garden from that change?

Bob, it's J.D. I'll speak to that. So, first of all, on the private label gains that we picked up at 2 major retailers. We saw some of the benefit this year, and we'll see benefit next year as well. They had to work through existing inventories of the previous supplier. So, we saw some of the benefit and then there'll be carryover. And then we picked up some additional stores with 1 of those 2 retailers for next year as well. So, we'll see that benefit. And then the second part of the question was?

The vendor partner losses.

The vendor partner losses, will we see that next year?

Yes.

Most of that will be -- we'll stop shipping those products this year, but we'll have a comp -- a difficult comp carrying into next year, right?

We start to lap that loss of the 2 product lines this quarter, Q4.

Yes, yes.

And by the way, the reason we were awarded more stores is because of great execution.

Fantastic execution. It's a beautiful business. We were glad to pick that up, and it's -- our in-store execution, the team there is doing a phenomenal job and gaining market share in this category and the retailer recognized that and awarded us additional business.

That's great. Well, congratulations on that. And you spoke to this a little bit, but I guess, again, thinking about next year in general, how much longer do you expect to see kind of a top line, I guess, self-imposed headwind from the SKU rationalization? Is that a full year, next year as well? Or when will you lap that?

We don't know yet. We're -- we still need to put the plans together for next year and really get our arms around what that top line looks like. We also have to take into account what the estimate is on innovation and other things that we're doing. We have to look at all the puts and takes around businesses that we won, that we lost, innovation, SKU rat. So, we just don't have clarity on that just yet as we're in the middle of putting our plans together. We'll certainly give everybody more guidance on that come November when we do that year-end call. We'll have more color.

And that's not unusual. Typically, the line review process, we don't know until late August, sometime September, what line review listings will look like for the following year.

Yes.

Okay. Great. Last one for me is, given the, I guess, current iteration of the de minimis tariff hold or exemption or whatever you want to call it, trying -- now putting the tariffs back on all goods coming in, might that help you in any way? And on the Pet side, are you seeing anything from that? Or is it -- now that durables is such a small part of the portfolio, it's not really a factor that you're watching?

Yes. We are watching it. It's -- frankly, it's really hard to get good data on it, but we aren't seeing any meaningful impact at this point related to it.

No, we're not. I think there's potentially that it could be a tailwind. I think the latest article I read in the Wall Street Journal was the end of August that it was going to be broad-based. So, we're going to stay super close to it, but it could be -- we could have a tailwind from it.

Yes.

And our next question comes from the line of Brian McNamara with Canaccord Genuity.

This is Madison Callinan on for Brian. What will it take for Garden to return to a consistent modest growth? Understanding weather is a factor with industry participants saying that the consumer is engaged. Can you give a little more color on why it isn't showing up in results?

Madison, this is J.D. Weather is a factor, as you said, it's the largest factor that usually impacts the Garden business. So, we need some favorable weather, particularly in season. And then when I say in season in our Q -- late Q2 and Q3 next year, that would be beneficial. The last couple of years, weather hasn't exactly cooperated. We play in lawn and garden consumables. It's a good space to be in. I think there's still great consumer engagement here and our retailers are very engaged. And I think that some of the metrics on the Garden P&L look very favorable. Our gross margins look great. Our operating margins look great. And we're getting top line pressure this year, mainly from what we've talked about a few times today, and that is the 2-vendor partner distributed products that were acquired by another company, and they ended up going direct with the retailers. So, we lost that top line. Having said that, we've seen nice growth across our branded business, our private label business. It hasn't been able to make up for the full top line, the revenue loss. But you can see that flowing down through our P&L, which has been actually quite strong in a difficult environment. So, we still feel very optimistic about this. We'll work through the losses of these vendor partner businesses. And I am encouraged by the fact that our manufactured products, our branded business is growing nicely. So still a good business from our perspective and one that has better days ahead.

Well, I would say, too, that J.D. is being modest, but on the Garden side of our business, the relationships with the larger customers have never been better. So those teams are just doing a great job. And I think you see that with us picking up private label business. So, there's some growth there. The other part, too, is when we look at the data, and we actually have good days in the Northeast and other areas, you see really tremendous POS. So that speaks to a very engaged consumer. The weather this year in our key markets has been -- was incredibly rainy in the spring, probably more rain than even last year. So, it could look to some like, "Oh, boy, it's a horrible category". But there's a lot of good momentum here within our business, and also with the customers and the consumer. So, we actually feel quite good about our business.

We do. And there's a lot of talk about an uncertain economic environment, right?

Yes.

And this category, Garden -- Lawn and Garden has performed very well in prior economic downturns. And that's because we play again in consumables. It's a relatively small cash outlay. So, consumers, they may forgo large capital projects, but they're going to do maintenance projects around their house. And oftentimes, that includes beautifying the yard. So still a good space to be in.

And this quarter has started off good from a ship perspective and POS perspective.

It has. Yes. Our retailers have remained engaged. They haven't given up on the season by any means. So, we think there's still runway in this year as well.

Great. And just like we were listening, when you've repurchased over $150 million stock over the last 3 quarters. Can you add anything about your view like that the shares are undervalued relative to M&A opportunities or lack thereof, anything around that?

We always think our shares are undervalued. But in particular, during those first 3 quarters, we felt like our shares were the best value out there. And we do want to be mindful and thoughtful around our shareholders and returning money to those shareholders. And at that point in time, given the lack of M&A activity that we were seeing or the lack of quality M&A activity, I should say, we felt our stock was probably the best value out there. So, we went pretty aggressively to buy it back.

And our next question comes from the line of William Reuter with Bank of America.

Just a couple. The first, you mentioned that the aggregate amount of tariffs in the fourth quarter would be $10 million.

That's full year. That's full year.

Okay. I think that you mentioned there really wasn't much in the second quarter and you don't expect much in the third quarter. I guess, is that right?

Yes. I mean, roughly, it was kind of, say, $3 million in Q3 and the balance would be Q4.

Got it. I guess if we think about what the run rate implies for next year, I guess, if the fourth quarter was $7 million and most of this is Pet, does that kind of imply that we'd be at a run rate of maybe something like $30 million for next year on an unmitigated basis?

Not really. I think -- I mean, honestly, I think we need to come back to you after year-end and talk about it in a bit more detail because the situation is very fluid, and these rates could change by the time we finish this call.

It changes this morning.

Yes. I mean, we're doing a lot of work on the supply side, working with our customers, and we are certainly not going to sit on our hands. So I wouldn't.

Yes, we're trying everything we can to mitigate tariffs or concessions, moving country of origin and SKU rationalization that we talked about. And it's likely we're going to have to work with our customers and partner with our customers on limited pricing.

And suppliers -- everything you said. So what kind of similar to when we gave the answer on top line, we've got a lot of work to do as far as our '26 plan, and we're in the process of doing that, and we'll be back to everybody with more guide for that year, including commentary around tariffs and pricing and all that stuff.

Got it. And then multiple times, you've mentioned private label and how your strong relationships with some of your customers have allowed you to pick up share. Are they changing the percentage of their floor space allocation to private label versus branded? Or I mean, are you -- I guess, are you just -- I don't know, are you picking up private label that was being produced by competition? How should we think about that?

It's a combination of both. We are picking up private label. It's produced by competition. At the same time, I mentioned our field team, our retail merchandising team, and they execute with excellence in the stores, which gets more off-shelf activity for private label. So, it's a combination of us picking up the product from -- that was previously manufactured by others and then better execution in store.

Got it. And then my last question, do you have a kind of long-term growth rate expectation for Pet consumables? There are numbers that a lot of different participants in this category throw out there for their expectations. And I was wondering if there was something which you guys had kind of tried to center your planning around?

Well, the good news that I mentioned about the category is we're seeing pet ownership stabilize, and we're actually seeing our Live Animal business stabilizing as well. Long-term, we believe this category can grow low to mid-single digits. And it has historically, and there's no reason to think it won't in the future.

This was our last question. Thanks, everyone, for joining our call today. The IR team is available for any questions that may arise after this call. Thank you.