Earnings Call Transcript - CENT Q2 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's Fiscal 2022 Second Quarter Earnings Call. My name is Chemaly, and I will be your conference operator for today. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President Investor Relations. Please go ahead.

Friederike Edelmann, Vice President Investor Relations

Thank you, Chemaly. Good afternoon, everyone. Thank you for joining us. With me on the call today are Tim Cofer, Chief Executive Officer; Niko Lahanas, Chief Financial Officer; J.D. Walker, President, Garden Consumer Products; and John Hanson, President, Pet Consumer Products. Tim will provide a business update, and Niko will discuss our financial '22 Q2 results in more detail and revisit our outlook for the full year. Following the prepared remarks, J.D. and John will join us for the Q&A. Our press release providing the results for our fiscal '22 second quarter ended March 26, 2022, and related materials are available at ir.central.com, and contain the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call. Lastly, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. I would like to remind you that statements made during this call, which are not historical facts, including the potential impact of COVID-19 on our business, earnings per share and other guidance for fiscal '22, expectations for new capital investments, product launches and future acquisitions are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements. These risks and others are described in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed on November 23, 2021. The Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events or otherwise. Now I will turn the call over to our CEO, Tim Cofer. Tim?

Timothy Cofer, CEO

Thanks, Friederike, and good afternoon, everyone. I want to start the call by thanking our team at Central for their continued dedication and passion for serving our consumers and customers across both the pet and garden industries. Our solid financial performance in the second quarter is a direct result of how well they are executing. Thank you, Team Central. Let me share 3 key takeaways from this quarter. First, Central delivered another solid quarter. We grew sales and operating income and, importantly, expanded gross margin in a challenging and highly inflationary environment. Second, although the garden season experienced a slow start, the weather has not been as favorable to date, and other risks like heightened inflation, geopolitical impacts, and supply chain disruption continue. We remain committed to our full year guidance of $3.10 or better, which represents 6% growth versus prior year non-GAAP EPS or 13% growth on a GAAP basis. And third, the fundamentals of the pet and garden industries are strong, and we expect the purposeful investments we are making now will drive long-term shareholder value. Now turning to our results. In the second quarter, Central delivered net sales growth of 2%, driven by our recent acquisitions. While organic sales declined 3.5%, it is important to note we are comparing against 23% sales growth in the prior year quarter. Shifting to gross margin. Like most companies, inflation has impacted all areas of our business, from commodities to packaging, labor rates, fuel costs, international ocean freight, and more. Thanks to our carefully executed pricing, favorable product mix, and productivity improvements, our gross margin expanded 100 basis points versus prior year. Our teams have done a good job controlling what we can control in this high inflation environment. Our operating income improved 2%, and even as we continue purposeful investments in strategic areas, including capacity expansion and automation, innovation, brand building, consumer insights, and e-commerce to drive long-term growth. And finally, as we indicated in our last earnings call, we expected second quarter EPS to be below prior year. EPS came in at $1.27 or $0.05 below Q2 of '21. Now let me provide you some color on the trends we're seeing across our customers and consumers in our 2 segments, starting with Pet. Today, more than half of all U.S. households own at least 1 pet, and that number has risen significantly during the pandemic years. Since 2019, an incremental 4 million households added pets to their families. Not surprisingly, household penetration in almost all of the pet supply categories also improved as our furry, feathery, and scaly friends benefit from the new normal. In addition to penetration gains, annual spend per household in the Pet category continues to increase with significant gains in 2020 versus 2019 and steady growth in 2021. Consumers are buying more often and spending more per trip compared to pre-pandemic levels. In line with these trends, our Pet segment enjoyed sustained consumer demand across most pet supplies categories on top of a record second quarter in the prior year. Notable contributions came from our dog and cat, outdoor cushions, professional and distribution businesses, offsetting softness in pet beds. Our point of sale or POS was down slightly as we are comparing 30% POS growth in the prior year quarter. We've made progress improving fill rates in every pet business, and as new capacity expansion projects are commissioned across our key businesses, we are working towards our goal of getting back to pre-pandemic service levels by year-end. We gained market share in several categories, including health & wellness, dog toys and treats, as well as equine. And last but not least, our investments in digital capabilities are beginning to pay off. E-commerce grew almost 10% and now represents approximately 22% of our Pet branded sales. Shifting to Garden. In 2021, Garden household penetration grew slightly with about 1 million households entering the Garden category on top of the even larger increase seen in 2020. The segments with the largest gains were live plants and wild birds as consumers continue to beautify their outdoor spaces and enjoy their new or renewed passion for gardening and caring for wild birds. Net sales growth in the Garden segment was driven by our recent acquisitions, all of which continue to perform well. Garden organic sales were below the prior year quarter. Three factors drove the organic sales decline. First, the garden season is off to a slower start and foot traffic across our key retailers has been down versus prior year. March saw cold temperatures and snow in many states, and inflation, including rising gas prices, has led consumers to consolidate their trips to stores. Second, as we mentioned in our last earnings call, we experienced a bit of a pull forward of sales into Q1. And finally, it is important to remember that we are comparing against a robust 23% organic growth rate in the prior year quarter. As a result, strength in Wild Bird was more than offset by softness in chemicals and fertilizer distribution, branded controls, and grass seed for both organic sales and POS. While brick-and-mortar still dominates the Garden channel landscape, e-commerce continues to become more relevant to consumers and our business. In Q2, our Garden e-commerce business grew by more than 20%, representing low single digits of total Garden sales. Service levels in our Garden businesses have improved over the prior year, and our teams are working hard to get fill rates back to historic levels by year-end. Now I'd like to take a few minutes to provide an update on our progress against our Central to Home strategy. Starting with the consumer pillar, where we seek to build and grow distinctive brands consumers love. We continue to elevate our capabilities, including significant new hires, new external partnerships, and a fresh focus on consumer insights to build our brands to new heights and create disruptive innovation platforms. This is inspiring new thinking and reinforcing a growth mindset. A critical goal for us is to step up product innovation to drive incremental growth, expand margins, and enhance the distinctiveness of our brands. Here are some recent examples. While dogs and cats continue to reign supreme, the growth of the other pet space cannot be denied. In fact, pets other than dogs and cats, although fewer in number, recently experienced the greatest surge in ownership with the number of households increasing 12% versus the prior year. Kaytee, our leading brand for small animals, is well positioned to take advantage of this growth trend, providing premium products, including food and treats, hay, bedding, accessories, and enclosures for pet birds, rabbits, guinea pigs, and more. Kaytee recently launched its NutriSoft line, which provides optimal nutrition for picky feathered eaters. Unlike almost all other bird food, which is hard, Kaytee NutriSoft pairs a distinctive soft texture with naturally sweet flavors and no artificial colors to mimic the fresh fruits and vegetables found in a pet bird's native habitat. We're excited about this disruptive food form and our strong marketing support behind it. To build and grow brands consumers love, we remain committed to invest in demand creation to accelerate organic growth. One example of our work is the recent #FlipTheTurf campaign. So in February, just in time for the Super Bowl, our Pennington brand launched a bold campaign, rallying together, players, fans, athlete advocates, and those fighting for a greener future to call upon the NFL to make a change for the better. While we've been keenly aware of the benefits of natural grass over turf when it comes to sustainability, Pennington also realized the safety issues turf presents to athletes. Thanks to our efforts, thousands of consumers signed our change.org petition, and the movement caught fire. Half of the NFL teams currently play on artificial turf. And we made a pledge that if they put safety and sustainability first and flip the turf to grass, we will provide our winning Pennington grass seed. The results of this campaign were impressive. Pennington had the highest social media engagement rate across every category of any brand that did not run a Super Bowl ad. This was an important step in building our brand purpose and recognition. Now let's turn to the customer pillar, where we focus on strengthening the relationships with our customers and building a leading e-commerce platform. We're proud that Central has been recognized once again as Petco's Companion Animal Vendor of the Year. We're pleased to receive this prestigious award for a continued commitment to championing the health and well-being of companion animals and expanding category sales. In our efforts to build a leading e-commerce platform, we recently completed the implementation of DoMyOwn's pick, pack, and ship solution for online fulfillment in our largest Arden cushion plant. This investment will increase Arden's e-commerce fulfillment capacity by 40% and provide a runway for growth for years to come in the fastest-growing channel. So to summarize my remarks, we feel good about the progress in both the second quarter and the first half of our fiscal year, and we're excited about the opportunities ahead of us. Nevertheless, fiscal Q3 is typically the largest quarter for Central, and unfavorable weather has caused a late start to the garden season. We expect continued inflation in commodities, freight, and labor, and we're monitoring consumer behavior and spending patterns as we execute further pricing actions across our Pet and Garden portfolios. We are also monitoring the impact of the Russia-Ukraine war on the global economy, including prices for certain grains and seeds, fertilizer, and energy on an already challenged global supply chain. For the remainder of fiscal '22, we remain focused on our top priorities that we laid out last quarter. First, successfully adding capacity and automation to restore customer service to historic levels. Next, managing through this inflationary period with a focus on pricing actions and cost control efforts. Third, making meaningful progress against our long-term strategy by investing in our capabilities, our brands, and our innovation agenda. And finally, continuing to recruit, retain, and develop the top talent in our industries. Despite the continued headwinds, I'm confident in our team's ability to navigate in these challenging times. With that, let me turn it over to Niko, who will share more details of our Q2 results and the outlook for the fiscal year. Niko?

Nicholas Lahanas, CFO

Thank you, Tim. Good afternoon, everyone. We feel good about the solid performance of our business given the current environment, especially after record net sales growth of 33% and EPS growth of 69% in the prior year quarter. Second quarter net sales reached $954 million, an increase of 2% and was due to the $52 million contribution from our recent acquisitions. Organic net sales declined 3.5%. However, looking at the growth over a 2-year period organic sales grew at a 14% CAGR in the second quarter. Consolidated gross profit increased $14 million to $287 million. Gross margin improved 100 basis points to 30.1%, thanks primarily to our pricing actions to mitigate the significant cost inflation in commodities, freight, and labor, as well as favorable product mix and productivity improvements. SG&A expense rose 7% to $180 million, driven by our recent acquisitions, higher logistics costs, our purposeful investment spending in capacity expansion and automation as well as in capabilities. SG&A as a percentage of net sales increased 100 basis points to 18.9%. Operating income grew by $2 million to $107 million, and operating margin was 11.2%, in line with prior year despite continued inflation and heightened investment spending. Net interest expense was $15 million compared to $10 million a year ago. The increase was due primarily to higher debt from the $400 million of senior notes we issued last April. Net income was $70 million compared to $73 million a year ago. Diluted GAAP earnings per share was $1.27 or $0.05 lower than in the prior year quarter, and adjusted EBITDA grew $2 million or 2% to $131 million. Our tax rate was 23.4% compared to 22.7% in the prior year quarter due to increased foreign earnings and higher tax rate jurisdictions. Now I'll provide some insights into the segments, starting with Pet. Pet segment sales increased 1% to $498 million, driven by dog and cat, outdoor cushions, professional, and distribution, offsetting lower sales in pet beds due to intentional SKU rationalization. Pet is up against strong comparables in the second quarter a year ago. And when looking at the growth over a 2-year period, organic Pet sales increased at a 12% CAGR. Pet segment operating income was $61 million, a decline of 2% compared to prior year, and operating margin declined 40 basis points to 12.2% due to inflationary headwinds in commodities, freight, and labor as well as purposeful investments in our growth initiatives to drive long-term growth. Pet segment adjusted EBITDA decreased $1 million or 1% to $70 million. Turning now to Garden. Garden segment sales grew 3% or $13 million to $457 million. Excluding the contribution from acquisitions, organic sales decreased 9% as growth in Wild Bird was more than offset by declines in chemicals and fertilizer distribution, branded controls, and grass seed. As Tim mentioned, the decline was driven by 3 factors: first, unfavorable weather across the country, causing a late start to the garden season, more than offsetting pricing action taken to cover inflation; second, some pull forward into Q1; third, our Garden segment is comparing against extraordinary growth in the prior year, and when looking at the growth over a 2-year period, organic garden sales increased at a 17% CAGR. Garden segment operating income grew 7% to $71 million. Garden segment operating margin increased 50 basis points to 15.4%, primarily driven by the benefits of our pricing actions and the contribution from acquisitions, exceeding inflationary headwinds and our heightened investment spending. Garden segment adjusted EBITDA increased $3 million or 5% to $78 million. Now moving to the balance sheet and cash flows. Cash and cash equivalents at the end of the second quarter were $54 million compared to $40 million a year ago. Given our liquidity position, we remain on the lookout for high-growth companies with accretive margins in both Pet and Garden to build scale in our core categories and our adjacent categories and add capabilities around e-commerce. Net cash used by operations was $180 million in the second quarter compared to $84 million a year ago. The increase was mainly driven by working capital requirements, in particular, an increase in inventory, resulting from an intentional buildup in inventory due to the increased demand for our products amid the continued global supply chain issues as well as higher input costs. CapEx was $51 million as we continue to lean in on capacity expansion and automation. Some examples of investments made in the quarter are new lines of production in dog and cat, relocating DoMyOwn to a larger, more efficient state-of-the-art facility and enhancing our manufacturing footprint and capabilities for branded controls in Missouri. Total debt was $1.2 billion, up from $1 billion at the same time last year. Our leverage ratio of 2.9x at the end of the quarter compared to 2.5x a year ago, well within our target range. We had no borrowings under our credit facility at the end of the second quarter. Depreciation and amortization for the quarter was $18 million compared to $19 million in the prior year quarter. During the quarter, we repurchased approximately 227,000 shares or $9.4 million of our stock. There remains $100 million under the Board's previously authorized share repurchase program, as well as additional shares under the Board's equity dilution authorization. And finally, turning to our fiscal '22 outlook. We are certainly pleased with our solid results in the second quarter and the first half of fiscal '22. We are now comparing against 2 years of extraordinary growth, and while improving our supply chain remains stressed with outstrip capacity. We continue to experience labor shortages across many of our businesses, and driven by the current geopolitical factors, we expect costs for raw materials and freight to increase further. While we have taken and plan to seek additional pricing where necessary, we may not be able to offset all the impact this fiscal year through pricing. We continue to pursue our productivity, cost agenda, and drive favorable mix to mitigate the gap. We are monitoring customer dynamics and consumer spending as they adapt to this inflationary environment. Despite all of this, we are executing against our long-term strategy and continue to lean in with purposeful investment spending to drive profitable sustainable growth. Considering all of the above, we are maintaining our guidance of fiscal '22 GAAP EPS of $3.10 or better. Please keep in mind that this outlook excludes any impact from potential acquisitions that may be undertaken during the year. And with that, we would like to open the line for questions.

Operator, Operator

Our first question comes from Bill Chappell with Truist Securities.

William Chappell, Analyst

Just looking at the garden season, clearly, from what you and Scotts said, it was a late start. Is there any way to quantify what impact that had on the Garden segment this quarter? And two, any kind of update on what you've been seeing as we move through April into early May?

Timothy Cofer, CEO

I'll give a quick headline and turn it over to J.D., who knows it even better. I mean, no doubt this year, unlike the last 2 years, we characterized as an unfavorable weather season so far. If I had to dimensionalize it, I think we're probably 3 to 4 weeks behind where we've been in the last couple of years, good weather years. And I mean, you know well, Bill, at some point, you kind of run out of runway. May and June are great months for us and will need to be great months for us. And we're hopeful, especially after a really bad March and April, that this thing can turn. So I think about it kind of 3 to 4 weeks behind type in terms of dimensionalizing the impact of the garden season. J.D., expand on that, if you would.

John Walker, President, Garden Consumer Products

Bill, it's J.D. here. I think Tim summarized it well. I'd say that it's very difficult to pinpoint exactly the impact from unfavorable weather. There are so many causal factors impacting the business. One of the more challenging business environments that I've seen; everything from retailers taking a very aggressive approach last year. They took a more measured approach this year to their inventory build in the stores. Tim mentioned earlier in his script that the retailer foot traffic was down year-over-year, a lot of that due to the inflationary environment, one like we haven't seen in several decades. We're still battling with lingering supply chain challenges. We're working our way through that, and we're seeing improvement in our service metrics. But that's still a challenge. And it was noted earlier as well that we had a pull forward into Q1. So with all of this noise, it's challenging to exactly pinpoint weather. I should mention that we took some pretty sizable price increases too. I think it's too early to tell the impact from those pricing increases on elasticity. All those things said, one encouraging sign is when the weather has been good and favorable, there is pent-up demand, and we've seen strong consumption at a retail level. So that's an encouraging thing. We just need the weather to be a little more favorable going forward.

William Chappell, Analyst

Got it. On the Pet side, what impacts are you seeing from the shutdowns in China? I don't recall how much of your manufacturing is sourced from there and whether this will affect your business in the coming months.

John Hanson, President, Pet Consumer Products

Bill, this is John. The global supply chain has been challenged for quite some time now. We've not seen the latest what's going on in China have a more negative impact, but our supply chain does remain challenged. We are catching up. Certainly, service in Q2 was better than it was in Q1. We've added a lot of capacity across the network, and we plan to sequentially improve service in Q3 and Q4.

Nicholas Lahanas, CFO

Yes. And Bill, I would just add just a reminder, we do a little bit less than 8% of our cost of goods coming out of China. And then the other thing I would point out is you'll notice our inventories were up quite a bit. And so we have forward bought inventories, and some of that would be the stuff coming in from China because we've learned the hard way that the supply chains are really slow-moving right now.

Operator, Operator

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Bradley Thomas, Analyst

And off to a really good start here against some very difficult comparisons. To that end, I was hoping to talk a little bit more about the outlook for organic sales in the two categories. And maybe starting with Pet. Given that we're now past what's, I believe, not only the toughest kind of 1-year comparison but also stack comparison. I was wondering your level of optimism that perhaps the organic sales may even be able to accelerate from here, just how you're thinking about things?

Timothy Cofer, CEO

Sure. I'll give a headline, and then we can go into both categories. I think to your point, Brad, when you think about this year, you can simplify it maybe into 2 halves where the front half the comps are a lot more challenging than the back half. A slightly more precise view would really think about it as the first 7 months versus the last 5. So it's really at this point in May where we're getting into far more favorable comps year-over-year. And so you saw that in some of the commentary we've already provided on Pet. We grew sales 1%, which we feel really good about because we're lapping 21% growth this quarter a year ago. And on Garden on the organic sales line, we were down high single digits, but again, lapping a 23% growth a year ago. As you look at the last 6 months, the last couple of quarters, particularly May year-to-date in our fiscal, you've got more favorable comps. I think on the Pet side, we continue to feel very good about the consumer fundamentals. We feel good about the competitiveness of our franchises. We noted a number of categories where we expanded market share in the quarter. We feel good about year-to-date initiatives. We've got a number of innovations hitting the market. We've got some new marketing campaigns, and you'll hear more about that as we talk Q3 and Q4. So I think overall, on the Pet side, feeling good about organic growth, low singles type growth likely year-to-date. And then on the garden side, as J.D. said earlier in the call, we do need mother nature to help us here and break more favorably. The comps, as you get the balance of the year, are a lot easier. And with some favorable weather, we should expect that to turn.

Bradley Thomas, Analyst

That's really helpful, Tim. And I was wondering if in the categories you could also go into a little bit more detail about what's happening on pricing versus volume? And how much that's a factor in sales relative to the volume trend?

Timothy Cofer, CEO

Pricing is the main factor driving our overall sales performance. We're seeing price increases in the high single digits, around 7% to 8% across both the Garden and Pet segments. This indicates that while prices have risen, there is a negative impact on volume. However, we do have certain business units and brands that are still managing to grow in volume. Our dog and cat segment, along with our outdoor cushions business and health & wellness division, are seeing both price increases and volume growth. It's essential to look at the specifics of each business unit and sometimes even individual SKUs. In general, our pricing strategy has been carefully executed at the customer channel and SKU level to consider competitive dynamics. We're facing significant inflationary pressures, and the original expectation for this year was a couple of hundred million in inflation, which is now looking higher, prompting us to adjust our pricing further. While pricing is affecting volume, the impact varies across different business units.

Operator, Operator

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

James Chartier, Analyst

I guess just Niko, what is kind of the outlook for acquisitions look like at this point as the current environment produced more opportunities for you? Just some color there would be great.

Nicholas Lahanas, CFO

Yes. I mean we're in several negotiations on deals right now. I would say certainly, the deal flow is not what it was a year ago. I think the private markets have sort of followed the public market valuations have sort of come down. And I think folks that were thinking of selling may be waiting a little bit until the volatility settles. So overall deal flow is a little bit muted compared to a year ago. That said, our pipeline is still pretty active, and we're in some pretty good discussions.

James Chartier, Analyst

Great. And then you mentioned a need for price increases later in the year. What magnitude of price increases would you need to kind of offset all of the additional inflation you're seeing today?

Timothy Cofer, CEO

It's the high single digits that I mentioned earlier is the plan here, so call it 7, 8 percent in aggregate, Jim. And I think between that, as you heard both Niko and I say earlier in the prepared remarks, between our pricing agenda, our cost-out productivity agenda relying on some continued favorable mix, and part of that is acquisition-related as well, right? Some of these recent acquisitions are also favorable on a margin basis. Between all of that, we're hopeful that we can either offset or largely offset that tsunami of inflation that, as I said, is now well north of a couple of hundred million on the year.

James Chartier, Analyst

Okay. And then just lastly, any color in terms of kind of cadence of sales and earnings for third and fourth quarter, any meaningful differences between the 2 quarters?

Timothy Cofer, CEO

You know us well. Clearly, there’s a significant difference between Q3 and Q4. We are optimistic that you will notice an increase in our top line in the second half, beginning in Q3 and Q4, compared to what we experienced in the first half. Earnings will reflect this as well, based on the $3.10 guidance we provided compared to our actual results from the first half. I'm not sure what else you’d like to add, Niko.

Nicholas Lahanas, CFO

No, I think if anything, you may see just looking at the late-breaking garden season, you may see some garden business maybe go into Q4 that we normally would see in Q3, assuming the weather cooperates, but that's about the only dynamic that I can see really happening other than the fact that Q3 is our biggest quarter. I don't think that's going to change.

John Walker, President, Garden Consumer Products

Niko, I would add to that, that last year, we had some fairly heavy inventories at retail at the end of Q3, and the retailers sold through a lot of that inventory in Q4. So that too may lead to exactly what you said, a little bit of a shift from Q3 into Q4 somewhat.

Operator, Operator

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

William Reuter, Analyst

My first question on the high single-digit price you mentioned and then over $200 million of inflation at this point. Are we in a dynamic such that we'll continue to see gross margin expansion in the back half of the year like we did in the second quarter?

Timothy Cofer, CEO

That's a great question. The answer is that it depends, as always. We'll need to see how inflation behaves in Q3. Additionally, we need to consider the elasticities and how much overhead we absorbed during that period. All these factors will influence how margins develop. Another important aspect is our mix. Our portfolio has a wide range of margins, and a favorable mix can significantly impact our margins. We saw this during the first half of the year, especially in Q2, with our acquisitions performing well and positively affecting margins. While we are planning for it, it's difficult to predict exactly how it will unfold. The situation is very fluid right now, and the late-breaking garden season adds another layer of complexity. We'll just have to wait and see how everything turns out.

William Reuter, Analyst

Okay. And then secondly, I have heard such a range of consumer behavior with regard to our consumers trading down now that inflation is accelerating. Have you been seeing a mix shift in terms of your private label, which I think is about 15% to 20% of sales? Has that been either gaining or losing sales relative to your branded products?

Timothy Cofer, CEO

Yes. William, we definitely monitor that closely. And as you said, I mean, one of the good things about our portfolio is the majority of our portfolio is definitely branded, but we do have some limited exposure to private label as well. So we monitor this closely. There are many categories where we may have an offering, both on the branded and the private label side. Looking at the data, including the most recent quarter, Q2, we are not seeing a shift from branded to private label in the categories in which we compete. In fact, I would tell you, pretty consistently, we're seeing our growth trends on branded outstrip the growth trends on private label by a margin. So we're on top of it. I think as the American consumer continues to be put under pressure with rising gas prices and overall inflation. They are going to be looking at trade-offs kind of category by category. But so far, in both lawn and garden consumables and in Pet as it relates to our business, we are seeing that as an unfavorable impact.

Operator, Operator

Our next question comes from the line of Hale Holden with Barclays.

Unidentified Analyst, Analyst

This is Mary Anne on for Hale. On the back of Jim's question, we were wondering if higher financing rates in the market have changed your outlook at all for the M&A pipeline?

Nicholas Lahanas, CFO

No, not at all. We really are very value-focused on the deal itself. And we don't really view financing rates having a huge impact on what we do. We look for great companies, and we look to expand our portfolio. And if we make the right decision on M&A, the cost of capital is pretty much secondary.

Operator, Operator

And our next question comes from the line of Carla Casella with JPMorgan.

Carla Casella, Analyst

Paused for a moment, I apologize if this has already been asked. But have you talked about inventory at retail and your comfort level in each category with inventory at retail? And how about purchasing versus last year? Do you see and buying ahead more this year we're trying to buy ahead?

John Walker, President, Garden Consumer Products

Sure. Carla, this is J.D. To answer your question, we see retail inventories up low double digits right now. But when you consider the pricing factor that we mentioned earlier, and the fact that a year ago, we still had fairly widespread out of stocks due to demand for the product. So really, we don't consider this to be heavy in inventory at all. I mentioned earlier that retailers last year loaded their stores earlier and heavier for the season in anticipation of the season. And this year, we're seeing them take a more measured approach. So we believe that if the weather improves and consumption improves, that should drive replenishment type orders, right?

Timothy Cofer, CEO

I wanted to mention that when we analyze total Garden sales net revenue alongside total Garden POS, we see they are fairly consistent, indicating there isn't a significant overhang or disruption to be concerned about. They are tracking in a similar manner. Would you agree, J.D.?

John Hanson, President, Pet Consumer Products

And then on Pet, I would say there is increased inventory at retail, but it's needed, right? Our service level has been challenged and has improved and is still improving, and we'll continue to improve, but there's nothing kind of out of sorts.

Operator, Operator

Next question comes from Karru Martinson with Jefferies.

Karru Martinson, Analyst

In terms of the additional pricing actions that you have planned for this year, are those already been negotiated with your retailers? Or is this something that you need to go to them and request additional price?

Timothy Cofer, CEO

Yes. As you examine our total pricing for fiscal '22, most of it has already been settled or communicated. However, due to inflation in some areas, we are seeking additional pricing, roughly around 15%. We are still negotiating with our customer partners, and 85% of our pricing is mostly secured.

Karru Martinson, Analyst

Okay. So it's a little flow through. And then when you look at kind of the volume declines, fully understanding that we're up against some tough comparisons, and we do have the late start to the garden season. But I think, as Bill had asked, we've heard it from many, many people of the state of the consumer, are you seeing the consumer kind of pushing back on pricing, whether it be for Pet or for Garden?

Timothy Cofer, CEO

I would generally say no, or perhaps more accurately, not yet. When you examine our overall organic sales growth and consider the significant drop we experienced in the 20s and 30s last year, along with the impact of a delayed start to the Garden season, it becomes clearer. In terms of pricing compared to volume mix, it aligns closely with what we anticipated when we initially created our plan and communicated it to the market. So far, we aren’t observing consumers distancing themselves from these high prices. Additionally, we aren’t seeing a significant shift toward private label products at this time. Another point to note is that we have several businesses which are still growing in volume despite these elevated prices, as I mentioned earlier. Overall, while the American consumer is facing pressure in many areas, the resilience in our Garden and Pet segments is promising.

Operator, Operator

And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Tim Cofer for closing remarks.

Timothy Cofer, CEO

Thank you. Thanks, everyone, for joining our call today and your continued interest in Central Garden & Pet. If you have further questions, please follow up with Friederike and our Investor Relations team, and we'll look forward to speaking with you again next quarter, if not before. Have a good day.

Operator, Operator

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.