On August 5, Central Garden & Pet (NASDAQ:CENT) reported fiscal 2026 third-quarter results for the period ended June 27, and the numbers pull in two directions at once. Net sales fell 8% to $882 million, yet the company raised its full-year profit outlook, a combination that says more about where the business is heading than the headline sales figure does.
Margins Do The Heavy Lifting
The most important number in this report is not on the top line. Gross margin expanded 130 basis points to 35.9%, and non-GAAP operating margin climbed 90 basis points to 15.4%, even as revenue shrank. That is largely because Central exited its pet distribution business earlier in the year, a lower-margin operation whose absence flattered every profitability metric that followed. Strip that exit out and organic net sales, which account for the divested business, actually rose 2% to $862 million.
The Garden segment did the real work here, with sales up 3% to $482 million on strength in wild bird feed, fertilizer and controls, and grass seed, pushing segment operating margin up 100 basis points to 18.7%. On the back of this performance, management raised its fiscal 2026 non-GAAP diluted EPS outlook from $2.70 or better to $2.85 or better, a meaningful upgrade delivered with one quarter still to report.
Central also announced a definitive agreement to acquire an 80% interest in TRIXIE, a European pet supplies and pet snacks company serving more than 30,000 retail stores, for up to €400 million including earn-outs. The deal would push international sales to roughly 10% of the total and give Central a foothold in a fragmented European pet specialty market, though it is not expected to close until the first half of fiscal 2027.
Where The Growth Story Gets Complicated
The margin expansion cannot fully mask what happened at the bottom of the income statement. GAAP diluted EPS fell to $1.45 from $1.52, and non-GAAP EPS slipped to $1.54 from $1.56, both declines even as the company was calling the quarter a success. Net income dropped 5% to $90 million. The Pet segment remains the bigger question mark: reported net sales there fell 19% to $400 million, and while organic Pet sales rose 2% to $380 million, the gap between reported and organic figures shows how much of the segment’s recent shape has been dictated by portfolio changes rather than underlying demand.
Operating income for the total company fell 7% to $126 million on a GAAP basis. The TRIXIE acquisition also adds integration risk on top of everything else. Buying a majority stake in a European company means absorbing new supply chains, retail relationships, and a leadership team that will retain a minority stake, and the deal will not close for the better part of a year, leaving plenty of time for terms or macro conditions to shift.
Funds Add Shares As The Stock Stays Cheap
Hedge fund ownership of Central ticked up from 27 funds to 28 in the most recent quarter, a modest gain that suggests institutional interest is holding rather than fleeing. Short interest sits at 6.86% of float, which is enough to signal a real bear camp without pointing to heavy crowding. The stock trades at a forward P/E of 13 as of September 2, a multiple that does not price in much growth and leaves room for upside if the TRIXIE deal and margin trends hold. That combination suggests that the market has not fully priced in either the raised guidance or the pending acquisition.
What This Quarter Actually Resolves
The tension in this report is straightforward: margins and guidance are moving up while reported sales and per-share earnings are moving down. For the bull case to play out, the Garden segment’s momentum needs to persist into the final phase of the season, and TRIXIE needs to close and integrate cleanly. For the bear case to matter more, the Pet segment’s reported softness would need to prove more than a distribution-exit artifact, and the EPS decline would need to become a trend rather than a single quarter’s dip. Nothing in this release settles which of those paths the next year takes.
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